SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________.
Commission File Number: 0-23055
Omega Orthodontics, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 95-4596853
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3621 Silver Spur Lane, Acton, California 93510
(Address of Principal Executive Offices) (Zip Code)
(805) 269-2841
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Redeemable Common Stock Purchase Warrants
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to the Form 10-KSB. [ ]
The issuer's revenues for the year ended December 31, 1997
were $ 975,918.
The aggregate market value of the voting stock held by non-
affiliates as of February 27, 1998 was $11,265,000. The amount
was computed by reference to the average bid and asked prices of
the Common Stock on that date on The Nasdaq Stock Market.
As of February 27, 1998, 4,800,982 shares of Common Stock were
outstanding, and 2,070,000 Redeemable Common Stock Purchase
Warrants were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1998
annual meeting of stockholders, which is expected to be filed
within 120 days after the end of the registrant's fiscal year,
are incorporated by reference in Part III of this Report. The
registrant's Current Report on Form 8-K dated January 14, 1998 is
also incorporated by reference in Part III, Item 8 of this
Report.
Contents and Cross Reference Sheet
(furnished pursuant o General Instruction F.2 of From 10-KSB)
Part I Page
Item 1 Description of Business 1
Item 2 Description of Property 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of
Security Holders 12
Part II
Item 5 Market for Common Equity and Related
Stockholder Matters 12
Item 6 Management's Discussion and Analysis 15
Item 7 Financial Statements 21
Item 8 Changes in and Disagreements With 44
Accountants on Accounting and
Financial Disclosure 44
Part III
Item 9 Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a) of the
Exchange Act 44
Item 10 Executive Compensation 44
Item 11 Security Ownership of Certain
Beneficial Owners and Management 44
Item 12 Certain Relationships and Related
Transactions 44
Item 13 Exhibits, List and Reports on Form 8-K 44
Signatures 52
PART I
Forward Looking Statements
Except for the historical information contained herein, the
discussion in this Report and any document incorporated herein by
reference contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the
Company's plans, strategies, objectives, expectations and
intentions. The cautionary statements made in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995" should be read as being applicable
to all forward-looking statements wherever they appear. The
Company's actual results could differ materially from those
discussed or incorporated herein. Factors that could cause or
contribute to such differences include those discussed in
Management's Discussion and Analysis of Financial Condition and
Results of Operations as well as those discussed elsewhere herein
or in the documents incorporated herein by reference.
Item 1. Description of Business
Omega Orthodontics, Inc. (the "Company" or "Omega") provides
management and marketing services primarily to orthodontic
practices and other specialty dental practices in the United
States. From its inception in August 1996 through September 30,
1997, Omega provided these services on a fee for services basis.
Following its initial public offering of securities on October 6,
1997 (the "IPO"), the Company offers its services primarily under
an affiliate relationship whereby it purchases the equity
interests in a management services organization ("MSO") that
holds certain assets of and is associated with an orthodontic or
other dental specialty practice that contractually affiliates
with the Company (individually, an "Affiliated Practice" and
collectively, the "Affiliated Practices") and enters into a long-
term management services agreement (the "Management Services
Agreement") with the Affiliated Practice.
As of December 31, 1997, the Company had completed
affiliation agreements with nine Affiliated Practices. In
addition, the Company had entered into interim management
agreements with two specialty dental practices pursuant to which
the Company provided its services on a fee for services basis
pending completion of affiliation agreements with such practices.
In January 1998, the Company completed affiliation agreements
with five new Affiliated Practices, including the two practices
with which it had previously entered into interim management
agreements.
Pursuant to its Management Services Agreements, the Company
receives a monthly management fee for providing facilities,
support staff and supplies to its Affiliated Practices and
institutes 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 Affiliated
Practice's profitability by focusing on and improving customer
service while simultaneously reducing costs and increasing
operating efficiency.
Omega seeks to affiliate with established orthodontic and
other specialty dental 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, fees, 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 concentration 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 and other specialty dental 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 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 has focused 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, as well as other specialty dental
practitioners, like endodontists, who may be in situations
similar to those experienced by those orthodontists targeted by
the Company.
The Orthodontic Industry
General. Omega believes that the annual market for
orthodontic treatment and services is approximately $3.6 billion.
Based on U.S. census data that indicate 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 five
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. Omega believes that
the number of patients of prime orthodontic treatment age (12
years old) will likely remain at a level that is 15% 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.
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,
Omega believes that 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 and other
specialty dental 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
dental practitioner (the "Affiliated Practitioner") and the
practitioner's staff implement the Model in order to achieve
operating efficiencies and increase profitability for the
practice.
Identify 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 and other dental specialists 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 two years, the members of the
senior management team responsible for operations, Messrs.
Schulhof, Bellavia and Elliott, each have 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 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. As of February
28, 1998, the [12] Affiliated Practices maintain an aggregate of
[13] offices, and such offices are situated in the following
locales: Goodyear and Bullhead City, Arizona; Huntington Beach,
Woodland Hills, and Encino, California; Colorado Springs,
Colorado; Conyers, Georgia; Champaign, Illinois; Elko and Reno,
Nevada; Watertown, South Dakota; Austin, Texas; and Glen Allen,
Virginia.
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. In some
cases, the parties will enter into an interim management
agreement pursuant to which the Company provides its services on
a fee for services basis pending completion of the affiliation
agreement and related Management Services Agreement. The Company
has paid, on average for each of its 12 Affiliated Practices, a
combination of approximately $315,000 in cash and issued
approximately 87,000 shares of the Common Stock valued at the
price per share of the Common Stock at the date of affiliation
and, in certain cases, issued notes bearing interest at 8.5% and
ranging in amount between $53,000 and $374,000. The Company
plans to enter into affiliation agreements and Management
Services Agreements with up to an additional 20 Affiliated
Practices during 1998 at an average purchase price of
approximately $600,000, of which the cash portion will be
approximately $200,000.
Implementing the Omega Exceptional Practice Model. The Model
is patient centered and designed to promote customer service and
increase the Affiliated Practitioner's productivity while
permitting the Affiliated Practitioner to deliver quality
treatment. The Model focuses the Affiliated Practitioner's team
on understanding patient expectations and provides the team with
the training, systems and other tools necessary to meet or exceed
those expectations. The Model is generally implemented in a
practice over a period of 12 months and involves the active
participation of the Company's professional staff, the Affiliated
Practitioner 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 provides a scheduling system that offers patients a wide
choice of appointment times, including night and weekend
appointments. The system also carefully plans the Affiliated
Practitioner's time so that the patient is seen on schedule and
the work is performed within the allotted appointment time. The
Company offers flexible payment plans that meet the varying
financial situations of the patients and reviews 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 Affiliated Practitioner's team is essential to building
successful relationships and developing customer satisfaction.
The Company trains the Affiliated Practitioner and his or her
staff in interpersonal skills and communication techniques and
carefully plans and scripts patient interactions so that the team
is attuned to patient needs and can handle their questions
accurately and efficiently. The staff is 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 uses computerized analysis
and video imaging to provide the patient with a clear
understanding of the proposed treatment, including, in the case
of orthodontics, 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 Affiliated Practitioner's professional
referral sources, the Model also encourages frequent
communication between his or her team and the referring dentist.
Automated diagnostic letters that include a treatment status
report and video images of the patient are periodically
delivered to the referring dentist. Brief seminars on current
dental specialty developments are planned from time to time at
the Affiliated Practitioner'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 specialty 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 patients. In order to increase the
Affiliated Practitioner's productivity, the Model requires his or
her 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. The team also
sets financial and quality goals for the practice. In order to
assist the team in accomplishing these goals, the Company has
produced written policies and procedures for the team to adopt
and follow and either upgrades the practice's present systems or
installs 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 is overseen by one of the Company's experienced practice
facilitators who coordinates the efforts of the Affiliated
Practitioner's team and the Company. The practice facilitator
visits the Affiliated Practice monthly during this period to
train the team, install systems and programs and audit and debug
their performance. By the end of the first 12 months, the
Affiliated Practice 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 Practitioners
The Company affiliates with orthodontic and other specialty
dental practices through a series of contractual arrangements.
Initially, the Company and an Affiliated Practitioner enter into
an affiliation agreement through which the Company acquires the
equity interests in the MSO associated with the Affiliated
Practitioner'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
Practitioner, who generally practices through and holds the
practice assets in a professional corporation, converts that
entity into a general corporation (the MSO) and creates a new
professional corporation through which the Affiliated
Practitioner continues to provide orthodontic or other specialty
dental care (the Affiliated Practice). The Company acquires the
equity interests in the MSO, and the Affiliated Practitioner
causes the Affiliated Practice 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 Affiliated Practice 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 Practitioner ceases practice with the
Affiliated Practice, the parties enter into a Stock Put/Call
Option and Successor Designation Agreement (the "Put/Call
Agreement"). This agreement creates for the Affiliated
Practitioner 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 dental
professional to purchase the stock of the Affiliated Practice
when the Affiliated Practitioner 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 Affiliated Practice, 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 Affiliated Practice between the time the
Affiliation Agreement is signed and the transaction is closed and
that the Affiliated Practice and the Company have entered into
the Management Services Agreement and the Put/Call Agreement.
Management Services Agreement. Pursuant to the Management
Services Agreement, the Company provides the Affiliated Practice
with comprehensive management, financial and marketing services
and facilities, equipment (in the control of the Affiliated
Practice, where required by statute) and support personnel
required by the Affiliated Practice to operate its clinical
practice. The Company maintains existing dental equipment at the
offices of the Affiliated Practice at the Company's expense and,
after consultation with the Affiliated Practitioner and agreement
upon the equipment needs of the Affiliated Practice, purchases
new equipment for use by the Affiliated Practice. The Company is
appointed the sole and exclusive business manager of the
Affiliated Practice. In addition to providing facilities,
equipment (in the control of the Affiliated Practice, where
required by statute) and support services, the Company undertakes
all purchasing, payment, billing, collection and payroll
functions for the Affiliated Practice and facilitates the
implementation of the Model.
The Affiliated Practice 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 the
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 Affiliated Practice 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 Affiliated Practice is also responsible for
entering into an employment agreement, including non-competition
provisions, with each dental practitioner engaged by it,
including the Affiliated Practitioner, and paying all salaries
for dental professionals, professional licensure and board
certification fees and professional liability insurance premiums.
The Management Services Agreement typically 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 Affiliated Practice 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 Affiliated Practice's gross collections for the period. From
the monthly fee, the Company pays all of its expenses in
providing services to the Affiliated Practice, including, without
limitation, the salaries and benefits of the Company's employees,
the costs of any consultants, corporate overhead, lease
obligations and taxes. In the event that the gross collections
of an Affiliated Practice in a given month are not sufficient to
pay the entire amount of salaries, benefits and other direct
costs payable by the Affiliated Practice and the Company's
monthly fee for such month, the Company anticipates making
routine advances to the Affiliated Practice to fund any
shortfalls for such month. Such advances will generally be
repaid by the Affiliated Practice to the Company without interest
as adequate funds are generated by the Affiliated Practice in
subsequent months.
Put/Call Agreement. The Put/Call Agreement governs the
dissolution of the affiliation between the Affiliated Practice
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 Practitioner. In the case of a
termination or expiration of the Management Services Agreement,
the Affiliated Practice may be required to repurchase the assets
of the MSO utilized in the practice of the Affiliated
Practitioner as set forth on the MSO's balance sheet as at the
end of the month immediately preceding the date of such
termination (when the termination is initiated by the Company) or
may have the right to repurchase such assets (when the
termination is initiated by the Affiliated Practice). Such
assets typically will include leasehold improvements, fixtures,
furniture, furnishings, equipment, inventory, supplies and
intangibles. In the event that the Company initiates the
termination, the Affiliated Practice is typically required to pay
book value for the assets as shown on the MSO's balance sheet,
and, in the event the Affiliated Practice initiates the
termination, the Company is typically required to pay an amount
equal to the sum of (a) the amount of cash paid to the Affiliated
Practitioner by the Company under the Affiliation Agreement,
(b) the original principal amount of the Promissory Note (if any)
issued by the Company to the Affiliated Practitioner under the
Affiliation Agreement, and (c) the value of that number of shares
of Common Stock issued to the Affiliated Practitioner under the
Affiliation Agreement, such value to be determined by multiplying
such number of shares by the average last sales (or closing)
price for the Company's Common Stock on the NASDAQ Small Cap
Market for each of the 60 trading days immediately preceding the
date the notice of the Affiliated Practice's determination to
repurchase such assets is delivered to the Company. When the
Affiliated Practitioner ceases practicing with the Affiliated
Practice, whether as a result of retirement, death, disability or
other reason, the Company typically has the option to designate a
successor practitioner to purchase the Affiliated Practice from
the Affiliated Practitioner in order to ensure that the
Affiliated Practice 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
Practitioner proposes to sell the Affiliated Practice to another
practitioner previously approved by the Company to be the
Affiliated Practitioner's successor in the ownership of the
Affiliated Practice.
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 Affiliated Practices 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 Affiliated
Practices 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 are three
publicly-traded companies, Orthodontic Centers of America, Inc.,
Apple Orthodontix, Inc. and OrthAlliance, Inc., actively
competing in the orthodontic practice management market and that
there are several other companies participating in the market.
These three competitors and the other companies are significantly
larger and have greater financial, marketing and other resources
than the Company. The Company will compete with these three
companies and other companies both for expansion into new
affiliate practices and for patients. Management, however,
believes the Company appeals to that segment of the orthodontic
market that relies primarily on traditional patient and general
dentist referrals to generate new business while these three
competitors and other companies appeal to that segment of the
orthodontic market that relies primarily on advertising and low
fees to attract patients who would not otherwise seek orthodontic
treatment.
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 fields of orthodontics and other dental specialties are
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 other dental specialists and on facilities and services
operated by them. In addition, federal and state laws regulate
health maintenance organizations and other managed care
organizations for which orthodontists and other dental
specialists may be providers. In connection with the entry into
new markets, the Company and its Affiliated Practitioners may
become subject to compliance with additional regulations.
The operations of the Affiliated Practices must meet
federal, state and local regulatory standards in the areas of
safety and health. Based on its familiarity with the operations
of its current Affiliated Practices and the activities of the
Affiliated Practitioners, management believes that its Affiliated
Practices are in compliance in all material respects with all
applicable federal, state and local laws and regulations.
The laws of many states prohibit orthodontists and other
dental specialists from splitting fees with non-dental
specialists and prohibit non-dental entities (such as the
Company) from practicing dentistry, including orthodontics, and
from employing orthodontists, other dental specialists or, in
certain circumstances, orthodontic and other dental specialty
assistants. The laws of some states prohibit advertising of
orthodontic and other dental specialty services under a trade or
corporate name and require that all advertising be in the name of
the orthodontist or dental specialist. A number of states also
regulate the content of advertisement of orthodontic and other
dental specialty services and the use of promotional gift items.
A number of states limit the ability of a non-licensed dentist to
own equipment or offices used in an orthodontic or other dental
specialty practice. Some of these states allow leasing of
equipment and office space to an orthodontic or other dental
specialty practice, under a bona-fide lease, if the equipment and
office remain in the complete care and custody of the
orthodontist or other dental specialist. Management believes,
based on its familiarity with the operations of its current
Affiliated Practices, the activities of the Company's Affiliated
Practitioners and the 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 Practitioners or the
operation of the Affiliated Practices. 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.
Employees
At December 31, 1997, the Company had approximately 74
employees and utilized a number independent contractors to assist
with certain corporate functions and to provide consulting
services to the Affiliated Practices. None of the Company's
employees are represented by a collective bargaining agreement.
The Company considers its relationship with its employees to be
satisfactory.
Insurance
The provision of orthodontic and other dental specialty
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 Practitioners
or have responsibility for compliance with certain regulatory and
other requirements directly applicable to the Affiliated
Practices, the contractual relationship between the Company and
the Affiliated Practices 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
Affiliated Practices 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 Affiliated Practices may have an adverse effect on the
Company's operations.
The Management Services Agreements require the Affiliated
Practices to maintain, at their expense, professional liability
insurance for themselves and each orthodontist or other dental
specialist employed by or otherwise providing professional
services for the Affiliated Practice in the minimum amount of
$500,000 per occurrence and $1,000,000 in the aggregate. In
addition, each Affiliated Practice 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 Affiliated Practices. The Company has general liability
insurance for itself and requires that it be named as an
additional insured party on the professional liability insurance
policies of the Affiliated Practices pursuant to the Management
Services Agreement. The Company does not maintain professional
liability insurance for itself.
The Company maintains other insurance coverage's 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.
Item 2. Description of Property
The Company leases facilities, under various operating leases
which expire through October 2017, for each of its current
Affiliated Practices. The Company subleases office space and
maintain its financial records in Massachusetts.
Item 3. Legal Proceedings
The Company is not a party to any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
The Company's Common Stock and Redeemable Common Stock Purchase
Warrants are traded on The Nasdaq Stock Market ("Nasdaq") under
the symbols ''ORTH'' and "ORTHW," respectively. Prior to October
1, 1997, there was no public market for the Common Stock or the
Redeemable Common Stock Purchase Warrants. The following table
sets forth the high and low bid quotation information by quarter
for each of the Common Stock and the Redeemable Common Stock
Purchase Warrants., as reported on Nasdaq. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
High Low
Fourth Quarter, 1997
Common Stock
$6.25 $2.87
Warrants 1.75 .50
(b) Holders
As of February 27, 1998, there were approximately 39 holders
of record of the Common Stock and two holders of record of the
Redeemable Common Stock Purchase Warrants. The Company believes
that the number of beneficial owners of the Common Stock and of
the Common Stock Purchase Warrants, respectively, is, in each
case, substantially in excess of the number of record holders.
(c) Dividends
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.
(d) Recent Sales of Unregistered Securities
During the year ended December 31, 1997, the Company sold
equity securities in the following transactions without
registration under the Securities Act in reliance upon the
exemption from registration set forth in Section 4(2) of the
Securities Act and the rules and regulations promulgated
thereunder:
During February and April 1997, the Company privately placed
$300,000 of its 15% Senior Notes due September 30, 1997 (the
"Bridge Notes") along with 60,000 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 the Company for these securities was
$300,000. The Company 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 the Company, Dr. C. Joel
Glovsky, the Chairman of the Board, and The Mayflower Group, Ltd.
("Mayflower"), a private banking firm and a holder of in excess
of five percent of the membership points of The Orthodontic
Management Effectiveness Group of America, LLC ("OMEGA, LLC"),
the principal stockholder of the Company, as amended and restated
in April 1997, the Company issued 225,000 shares of its Common
Stock to each of Dr. Glovsky and Mayflower in partial
consideration of certain consulting services rendered by Dr.
Glovsky and Mayflower to the Company. Such consulting services
had a deemed value of approximately $2.0 million. Dr. Glovsky,
as the Chairman of the Board of the Company, and Mayflower, as a
principal point holder of OMEGA, LLC, the principal stockholder
of the Company, had access to information on the Company
necessary to make an informed investment decision. The Company
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, the Company issued 10,000 shares of its Common
Stock to Leonard, Mulherin & Greene, P.C., a public accounting
firm ("LMG"), in partial consideration for $50,000 worth of
consulting services provided by LMG to the Company. Omega's
Chief Financial Officer is a principal stockholder of LMG.
Accordingly, LMG, through one of its principal stockholders, had
access to information on the Company necessary to make an
informed investment decision. The Company 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 October 1997, simultaneously with the closing of its IPO,
the Company issued an aggregate of 465,314 shares of its Common
Stock to six of the seven initial Affiliated Practitioners as
partial consideration for their affiliation with those six
Affiliated Practitioners and granted an option to the seventh
Affiliated Practitioner to acquire 83,333 shares of the Company's
Common Stock an at exercise price of $6.00 per share as partial
consideration for such affiliation. The Company 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 December 1997, the Company issued an aggregate of 118,509
shares of its Common Stock to two Affiliated Practitioners as
partial consideration for the affiliation with those two
Affiliated Practitioners. The Company 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.
(e) Use of Proceeds from Registered Securities
The Company's Registration Statement on Form SB-2
(Registration No. 333-27179), as amended, with respect to the
offering of shares of the Common Stock and Redeemable Common
Stock Purchase Warrants in the Company's IPO was declared
effective on September 30, 1997. The IPO commenced on October 1,
1997 and has since terminated, resulting in (i) the sale by the
Company of 2,070,000 shares of Common Stock on October 6, 1997
(including 270,000 shares of Common Stock sold pursuant to the
exercise of the underwriters' over-allotment option on the same
date) and (ii) the sale by the Company of 2,070,000 Redeemable
Common Stock Purchase Warrants on October 6, 1997 (including
270,000 Redeemable Common Stock Purchase Warrants sold pursuant
to the exercise of the underwriters' over-allotment option on the
same date). The shares of Common Stock and the Redeemable Common
Stock Purchase Warrants sold constituted all the shares of Common
Stock and all the Redeemable Common Stock Purchase Warrants
covered by the Registration Statement and available for sale to
the public in the IPO. The managing underwriter for the IPO was
National Securities Corporation. The aggregate price to the
public for the shares of Common Stock and the Redeemable Common
Stock Purchase Warrants sold in the IPO was $12.6 million. The
Company incurred total expenses of $3.1 million, including $1.3
million in underwriting discount and commissions paid by the
Company and $1.8 million in other expenses. The amount of other
expenses is a reasonable estimate of such amount. None of such
payments was a direct or indirect payment to directors or
officers of the Company or their associates, to persons owning
10% or more of any class of equity securities of the Company or
to affiliates of the Company.
The net proceeds to the Company from the IPO were $9.5 million.
The Company used such net proceeds as follows: (i) $1.1 million
for the repayment of debt; (ii) $2.1 million to consummate the
affiliations with the seven initial Affiliated Practices (the
"Initial Affiliated Practices"); (iii) $433,000 to consummate
affiliations with additional Affiliated Practices; and (iv)
$450,000 for working capital and other corporate purposes. None
of such payments was a direct or indirect payment to directors or
officers of the Company or their associates, to persons owning
10% or more of any class of equity securities of the Company or
to affiliates of the Company, except (a) $115,000 of debt
repayments were paid to Dr. Glovsky, the Chairman of the Board of
the Company; (b) $50,000 of debt repayments were paid to Dr. Dean
C. Bellavia, a director of the Company; (c) $50,000 of debt
repayments were paid to Dr. David T. Grove, a director of the
Company, and $333,567 was paid to Dr. Grove as partial
consideration for acquiring certain assets of his practice in
connection with the consummation of the affiliation with his
Affiliated Practice; and (d) $100,000 was loaned to Robert J.
Schulhof, the President and Chief Executive Officer of the
Company, to assist him in repaying certain personal obligations
which he incurred during the start up of the Company.
Item 6.Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Omega was incorporated in Delaware in August 1996. Following
its IPO on October 6, 1997, the Company began to offer its
services primarily under an affiliate relationship whereby it
purchases the equity interests in an orthodontic practice's MSO
pursuant to an Affiliation Agreement and enters into a long term
Management Services Agreement with the Affiliated Practitioner's
Affiliated Practice. Pursuant to the Management Services
Agreement, the Company receives a monthly management fee for
providing all of the Affiliated Practice'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 Affiliated
Practice.
Pursuant to the Affiliation Agreement, the Affiliated
Practitioner typically converts his existing professional
corporation into a general corporation that will function as the
MSO and creates a new professional corporation (the Affiliated
Practice) through which the Affiliated Practitioner will continue
to provide orthodontic care. The MSO retains certain assets and
liabilities which typically include the lease for the Affiliated
Practice's office space, clinical supplies and equipment and
office furniture, supplies and equipment. The Affiliated
Practice will retain certain other assets and liabilities (if
any) which typically include all cash and cash equivalents, real
property, automobiles, patient records, related patient
information and notes payable unrelated to assets purchased. The
Company generally acquires all of the equity interests of the
MSO from the Affiliated Practitioner, 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, notes and unregistered Common Stock or
stock options. The average MSO purchase price is approximately
$600,000, of which the cash portion is approximately $200,000.
The Management Services Agreement provides that the
Affiliated Practice 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 is negotiated based on
specific circumstances, the management fees charged typically
range between be 65% to 75% of the Affiliated Practice'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.
If the Affiliated Practice's expenses payable by the MSO are less
than an agreed target amount of expenses, the difference between
the target amount and the actual expenses will typically be
shared equally by the MSO and the Affiliated Practice. At the
retirement, disability or death of the Affiliated Practitioner,
the Company will identify a replacement Affiliated Practitioner
to purchase the Affiliated Practice and assume the Management
Services Agreement.
Concurrent with the IPO, the Company executed Affiliation
Agreements with seven Initial Affiliated Practices. In addition,
between October and December 31,1997 the Company entered into
Affiliation Agreements with two additional Affiliated Practices.
Pursuant to those collective agreements, the Company acquired
the equity interests in the MSOs of all nine Affiliated
Practices. Each of the Affiliated Practices is operated with one
practitioner, who is typically supported by a staff of three
dental assistants and three office personnel. Gross revenues for
each Affiliated Practice for the year ended December 31, 1996
ranged from a low of approximately $390,000 to a high of
approximately $975,000.
In consideration for acquiring the MSOs, the Company paid
the aggregate of approximately $2.2 million in cash, issued an
aggregate of approximately $441,000 in notes bearing interest at
8.5%, assumed $973,973 of liabilities, issued an aggregate of
583,823 shares of Common and granted options to acquire
83,333 shares of Common Stock.
The Company expects that its future growth will come from
implementing its Model with Affiliated Practices and entering
into Affiliation Agreements with new Affiliated Practices. The
ability of the Company to achieve its expansion will depend upon
a number of factors, including (i) the Company's ability to
attract orthodontic and other dental specialists to affiliate
with the Company, (ii) the availability of suitable markets and
the Company's ability to obtain suitable locations within those
markets; (iii) 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 (iv) the availability of
adequate financing to fund affiliations with orthodontic and
other dental specialty practices. A shortage of available
orthodontists and other dental specialists 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 Affiliated
Practices.
The value assigned to the Management Services Agreement with
the acquisition of the assets and liabilities of the MSO and
concurrent Management Services Agreement with the Affiliated
Practices has been accounted for by the Company in accordance
with the Emerging Issues Task Force ("EITF") Issue 97-2.
Substantially all of the intangible assets on the Company's
consolidated balance sheet as of December 31, 1997 are related to
the affiliation with the Affiliated Practices. The Company
evaluates each affiliation and establishes an appropriate
amortization period based on the underlying facts and
circumstances. Currently, the Company uses an amortization
period ranging from 25 to 40 years, consistent with the extended
terms of the Management Services Agreements. Subsequent to each
acquisition, the Company reevaluates such facts and circumstances
to determine if the related intangible assets continue to be
realizable and if the amortization period continues to be
appropriate.
Amortization of the intangible assets on the Company's
consolidated balance sheet as of December 31, 1997 produced an
amortization expense of approximately $35,000. Affiliations with
additional Affiliated Practices will result in the recognition of
additional intangible assets and will cause amortization expense
to increase further. Although the net unamortized balance of
intangible assets on the Company's consolidated balance sheet as
of December 31, 1997 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 intangible assets , which would have a material
adverse effect on the Company's business, financial condition and
results of operations.
Results of Operations
For the year ended December 31, 1997 and the period from
inception (August 30, 1996) through December 31, 1996.
Revenues
Prior to the Company's IPO, on October 6, 1997, the Company
provided management consulting services to Orthodontic practices
on a fee for service basis. Management consulting fees were
approximately $43,000 for the period from inception (August 30,
1996) through December 31, 1996 and approximately $58,000 for the
year ended December 31, 1997 and are reflected as consulting fee
revenue in the accompanying statements of operations. Following
the completion of the IPO on October 6, 1997, the Company
completed its affiliations with seven Affiliated Practices and
generated service fee revenue of approximately $918,000 for the
year ended December 31, 1997. In addition, between October 1,
1997 and December 31, 1997, the Company affiliated with two
additional practices on an interim management agreement basis.
Under the terms of the interim management agreements, the Company
receives service fee revenue for providing management services
which are essentially the same as management service fees earned
upon consummation of a formal Management Services Agreement.
Accordingly, service fee revenue reflects only three months of
operations during the year ended December 31, 1997. There were
no service fee revenues for the period from inception (August 30,
1996) to December 31, 1996.
Cost and Expenses
The Company incurred operating costs and expenses of
approximately $4.5 million for the year ended December 31, 1997.
The Company's costs and expenses consist primarily of salaries
and benefits, orthodontic supplies, rent, advertising and
marketing, general and administrative and depreciation and
amortization. The Company incurred operating costs and expenses
of approximately $248,000 for 1996 which represented corporate
office expense and the cost of providing certain management
consulting services for the period from inception (August 30,
1996) through December 31, 1996. Of the $4.5 million of costs
and expenses for the year ended December 31, 1997, approximately
$2.3 million relates to the value ascribed to stock and stock
options issued to advisors of the Company in April 1997, and
$305,000 relates to cash payments to be made in 1998 in
connection with those stock grants. The Company also incurred
various legal, accounting, travel, personnel and marketing costs
during the period from inception (August 30, 1996) through
December 31, 1996 in connection with the IPO and the affiliations
with the Affiliated Practices. The Company's costs and expenses
include:
Employee Costs. Includes all salaries, payroll taxes and
fringe benefits of the dental assistants, office staff and
corporate office personnel.
Other Direct Costs. Includes dental and office supplies,
laboratory costs, facilities and equipment for the
Affiliated Practices and corporate office.
General and Administrative. Includes all other operating
expenses, including advertising, repairs and maintenance,
computer support, telephone, utilities, taxes and licenses
for the Affiliated Practices and corporate office, as well
as the cost of consultants, professional fees and travel
related to providing support to the Affiliated Practices and
corporate office.
Depreciation and Amortization. Includes depreciation of
equipment and leasehold improvements of the Affiliated
Practices and amortization of intangible assets related to
the Management Services Agreements.
Non-recurring Consulting Expense. Relates to approximately
$2.3 million value ascribed to stock and stock options
issued to advisors of the Company in April 1997 and $305,000
relates to cash payments to be made in 1998 in connection
with those stock grants.
Interest Expense
Interest expense of approximately $149,000 for the year
ended December 31, 1997 reflected the cost of borrowings under
interim and bridge financing used to finance the cost of
operations and IPO costs. These notes were paid in full with a
portion of the proceeds of the IPO. In addition, interest
expense includes notes payable to Affiliated Practices issued as
part of the purchase price of those practices. Interest expense
of approximately $30,000 for the period from inception (August
30, 1996) to December 31, 1996 reflects the cost of borrowing
under bridge financing outstanding at that time.
Interest Income
Interest income of approximately $79,000 for the year ended
December 31, 1997 reflected interest earned on the Company's net
proceeds from the IPO. Interest income of $2,000 for the period
from inception (August 30 ,1996) to December 31, 1996 reflected
interest earned on the net proceeds of the bridge notes issued
during 1996.
Net Loss
As a result of the foregoing factors, the Company generated
a net loss of approximately $3.6 million, or $1.59 per share, for
the year ended December 31, 1997, versus a net loss of
approximately $232,000, or $0.14 per share, for 1996.
Liquidity and Capital Resources
Financing Activities
The Company has financed its capital requirements to date
with borrowings from bridge and interim notes and the issuance of
equity securities.
Omega has experienced net losses, negative cash flows, a
deficit in working capital and an accumulated deficit since its
inception. The Company's accumulated a deficit from inception
(August 30, 1996) to October 1, 1997 (the Company's IPO) was
approximately $3.3 million. The Company reported a significant
loss from operations for the year ended December 31, 1997 due
primarily to the value ascribed to certain stock compensation
earned by consultants in April 1997. At December 31,1997, the
Company had an accumulated deficit since inception of
approximately $3.9 million.
The Company makes routine cash advances from time to time
to its Affiliated Practices under its Management Services
Agreements to fund any deficits in monthly cash flows of the
Affiliated Practices. Such advances will generally be repaid by
the Affiliated Practices to the Company without interest as
adequate funds are generated by the Affiliated Practices.
The Company's expansion strategy requires substantial
capital resources. Capital is needed not only for the
affiliation with future Affiliate Practices, but also for the
effective integration, operation and expansion of the existing
and future Affiliated Practices. In addition, the Affiliated
Practices may from time to time require capital for renovation
and expansion and for the addition of equipment and technology.
The extent to which the Company is able or willing to use shares
of Common Stock to enter into future affiliations or provide
future financing will depend on the market value of the Common
Stock from time to time and, in the case of affiliations, the
willingness of owners of potential Affiliated Practices to accept
Common Stock as full or partial payment of consideration for
their affiliations. Using shares of Common Stock for these
purposes may result in significant dilution to existing
stockholders. The Company will require additional capital from
outside financing sources in order to continue its expansion
program. There can be no assurance that the Company will be able
to obtain additional funds when needed on satisfactory terms or
at all. Any limitation on the Company's ability to obtain
additional financing could have a material adverse effect on the
Company's business, financial condition and results of
operations.
Business Development
The Company's business development program also requires
significant amounts of capital. The amount of cash needed to
attract new Affiliated Practices, particularly the amount to be
used in any given period, depends on a number of factors, many of
which are beyond the Company's control. The Company anticipates
the use of a combination of cash, notes and shares of its Common
Stock to fund such additional affiliations, the Company will use
cash flows from operations, net proceeds from its IPO and will
seek to raise capital through bank borrowings and public or
private debt or equity issuances. The availability of these
capital sources will depend on prevailing market conditions,
interest rates and the financial condition of the Company.
During the year ended December 31, 1997, the Company spent
approximately $2.2 million of cash, issued 583,823 shares of
Common Stock and granted options to acquire 83,333 shares of
Common Stock in connection with affiliations with Affiliated
Practices.
Working Capital Management
The Company had $4.7 million of working capital at December
31, 1997, consisting primarily of cash and cash equivalents of
approximately $5.4 million as a result of the net proceeds
remaining from the IPO.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995
Forward-looking statements in this report, including without
limitation, statements relating to the Company's plans,
strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.
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 Affiliated Practices will be profitable,
that the orthodontic industry will not change materially or
adversely, and that there 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 Report 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.
Item 7. Financial Statements
Omega Orthodontics, Inc.
Consolidated Financial Statements
Index
Consolidated Financial Statements:
Reports of Independent Auditors F-1
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity (Deficit)F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Omega Orthodontics, Inc.:
We have audited the accompanying consolidated balance sheet of
Omega Orthodontics, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the year then ended. These
consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Omega Orthodontics, Inc. and subsidiaries as of
December 31, 1997, and the results of their operations and their
cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Boston, Massachusetts /s/ Arthur Andersen LLP
March 19, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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.
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.
Boston, Massachusetts /s/ Ernst & Young LLP
March 7, 1997
Omega Orthodontics, Inc.
Consolidated Balance Sheets
December 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 5,421,721 $ 321,057
Receivable from affiliated practices, net of
allowance of $5,700 in 1996 926,271 18,296
Notes receivable from affiliated practice 50,000 -
Notes and interest receivable from related parties 120,859 -
Prepaid expenses 55,791 4,000
Total current assets 6,574,642 343,353
Property and equipment, at cost, net 503,339 10,096
Due from affiliated practices 53,194 -
Intangible assets, net of accumulated amortization of
$35,145 in 1997 5,099,043 -
Other assets 80,303 137,474
Total assets $12,310,521 $ 490,923
The accompanying notes are an integral part of these consolidated
financial statements.
Omega Orthodontics, Inc.
Consolidated Balance Sheets
(Continued)
December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 155,671 $ 21,234
Accrued expenses 354,513 88,115
Patient prepayments 775,699 -
Current portion of long-term debt 76,130 575,000
Due to affiliated practices 147,955 -
Due to related parties 305,000 27,036
Total current liabilities 1,814,968 711,385
Long-term debt, less current portion 468,551 -
Total liabilities 2,283,519 711,385
Commitments and contingencies (Note 12)
Stockholders' equity (deficit):
Preferred stock, $.01 par value per share; 500,000
shares authorized; no shares issued - -
Common stock, $.01 par value per share; 9,500,000
shares authorized; 4,338,823 and 1,615,000 shares
outstanding at December 31, 1997 and 1996,
respectively 43,388 16,150
Additional paid-in capital 13,858,851 -
Accumulated deficit ( 3,875,237) ( 232,112)
Deferred compensation - (4,500)
Total stockholders' equity (deficit) 10,027,002 ( 220,462)
Total liabilities and stockholders'
equity (deficit) $ 12,310,521 $ 490,923
The accompanying notes are an integral part of these consolidated financial
statements.
Omega Orthodontics, Inc.
Consolidated Statements of Operations
Period From
Inception
(August 30, 1996)
Year Ended to
December 31, 1997 December 31, 1996
Revenues:
Service fees $ 918,312 $ -
Consulting fees 57,606 43,078
Total revenues 975,918 43,078
Costs and expenses:
Employee costs 744,731 90,554
Other direct costs 173,538 11,678
General and administrative 979,247 144,670
Depreciation and amortization 116,203 1,116
Non-recurring consulting expense 2,592,500 -
Total costs and expenses 4,606,219 248,018
Loss from operations (3,630,301) ( 204,940)
Interest expense ( 91,489) ( 29,635)
Interest income 78,665 2,463
Net loss $(3,643,125) $( 232,112)
Basic and diluted net loss per share $( 1.59) $( 0.014)
Weighted average number of common shares
outstanding 2,289,623 1,685,000
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
<CAPTION>
Omega Orthodontics, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Common Stock Additional Total
Number of $.01 Par Paid-in Accumulated Deferred Stockholders'
Shares Value Capital Deficit Compensation Equity (Deficit)
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
advisors' agreement 450,000 4,500 - - (4,500) -
Net loss - - - ( 232,112) - (232,112)
Balance, December 31,
1996 1,615,000 16,150 - ( 232,112) (4,500) (220,462)
Issuance of common stock in
connection with debt
offering 60,000 600 - - - 600
Release from escrow of
common stock previously
issued to advisors - - 2,020,500 - 4,500 2,025,000
Issuance of common stock to
consultants 10,000 100 - - - 100
Initial public offering of
common stock and warrants,
net of issuance costs of
$3,101,831 2,070,000 20,700 9,504,487 - - 9,525,187
Issuance of common stock
and stock options to new
affiliated practices 583,823 5,838 2,071,364 - - 2,077,202
Issuance of stock options to
non-employee - - 262,500 - - 262,500
Net loss - - - ( 3,643,125) - (3,643,125)
Balance, December 31,
1997 4,338,823 $ 43,388 $13,858,851 $( 3,875,237) $ - $ 10,027,002
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Omega Orthodontics, Inc.
Consolidated Statements of Cash Flows
Period from
Inception
(August 30,1996)
Year Ended to
December 31, 1997 December 31, 1996
Cash flows from operating activities:
Net loss $( 3,643,125) $( 232,112)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for bad debts - 5,700
Depreciation and amortization 116,203 9,500
Stock compensation 2,288,200 2,430
Changes in operating assets and
liabilities, excluding the
effects of acquisitions:
Receivable from affiliated practices ( 809,080) ( 23,996)
Prepaid expenses and other assets ( 51,791) ( 4,000)
Accounts payable 134,437 21,234
Accrued expenses ( 260,890) 88,115
Patient prepayments 436,782 -
Due to affiliated practices 147,955 -
Due to related parties 277,964 27,036
Net cash used in operating activities (1,363,345) ( 106,093)
Cash flows from investing activities:
Purchases of property and equipment ( 93,716) ( 7,284)
Increase in other assets ( 80,648) ( 1,644)
Acquisition of management services
agreements and related assets (2,216,134) -
Notes receivable ( 170,859) -
Net cash used in investing activities (2,561,357) ( 8,928)
Cash flows from financing activities:
Deferred offering costs - ( 101,228)
Debt financing costs ( 22,049) ( 37,694)
Repayment of borrowings (1,089,000) -
Proceeds from issuance of notes payable 510,000 575,000
Net proceeds from issuance of common stock and
warrants 9,626,415 -
Net cash provided by financing activities 9,025,366 436,078
Net increase in cash and cash equivalents 5,100,664 321,057
Cash and cash equivalents, beginning
of period 321,057 -
Cash and cash equivalents, end of period $ 5,421,721 $ 321,057
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 97,607 $ 20,135
The accompanying notes are an integral part of these
consolidated financial statements.
Omega Orthodontics, Inc.
Consolidated Statements of Cash Flows - (Continued)
Period from
Inception
(August 30,1996)
Year Ended to
December 31, 1997 December 31,1996
Supplemental disclosure of cash
flows related to acquisitions:
Fair value of assets acquired,
excluding cash $ 5,708,177 $ -
Issuance of common stock ( 2,077,202) -
Issuance of notes payable ( 440,868) -
Payments in connection with
acquisitions, net of cash acquired ( 2,216,134) -
Liabilities assumed $ 973,973 $ -
Supplemental disclosure of non cash
items from investing activities:
Issuance of common stock in connection
with acquisitions $ 2,077,202 $ -
Issuance of debt in connection with
acquisitions $ 440,868 $ -
The accompanying notes are an integral part of these consolidated
financial statements.
Note 1 - Organization and Basis of Presentation
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 provides management and marketing services to
orthodontic and other dental specialty 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 (MSO) that
holds certain assets of and is associated with an orthodontic or
other dental specialty practice (Affiliated Practice) and enters
into a long-term management services agreement (Management
Services Agreement) with the Affiliated Practice of the selling
orthodontist or other dental specialist (Affiliated
Practitioner). Pursuant to that agreement, the Company receives
a monthly management fee, based on the revenue of the Affiliated
Practice, for providing all of the Affiliated Practice's needs,
including facility, staff, supplies, as well as a program of
systems, methods and procedures designed to enhance the growth,
efficiency and profitability of the Affiliated Practices.
On October 6, 1997, the Company closed its initial public
offering of securities pursuant to which the Company sold
2,070,000 shares of common stock and 2,070,000 common stock
purchase warrants. The Company received proceeds from the
offering, net of the underwriter's discount, fees and expenses,
of approximately $9.5 million. From the net proceeds, the
Company paid in full the notes payable used to finance operations
prior to the offering and paid the cash portion of the
affiliations with seven orthodontists (see Note 3), resulting in
cash available after the offering and related expenses of
approximately $6.3 million.
The Company is subject to a number of risks associated with
emerging, growth companies. Principal among these are the risks
associated with managing growth, marketing the Company's services
and the need to obtain adequate additional financing to fund
future operations and acquisitions. Management's financial plans
indicate that additional financing will be required in future
periods to meet the Company's strategic business plan; therefore,
management is exploring various financing alternatives.
The Company has incurred losses of $3,875,237 from inception
through December 31, 1997 and has funded those losses primarily
through the sale of common stock. The Company is dependent on
the proceeds of additional financing to achieve its business
plan.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
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 amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash and
cash equivalents. Cash equivalents consist primarily of
commercial paper at December 31, 1997 and are carried at cost,
which approximates market value.
Property and Equipment
Property and equipment is stated at cost. Equipment under
capital lease is stated at the net present value of the future
minimum lease payments at the inception of the related leases.
Depreciation expense is provided using the straight-line method
over the estimated useful lives of the assets, five to seven
years. Leasehold improvements are amortized using the straight-
line method over the shorter of the lease term or estimated
useful life of the assets. Routine maintenance and repairs are
charged to expense as incurred, while costs of betterments and
renewals are capitalized.
Intangible Assets
Intangible assets consist primarily of the value ascribed to
Management Services Agreements which are amortized over the life
of the Management Services Agreements (ranging from 25 to 40
years) with the respective Affiliated Practices. The Company's
management periodically evaluates the realizability of the
intangible assets on a practice by practice basis considering
such factors as profitability and net cash flow. Should this
evaluation result in an assessment that the value of the
intangible asset is overstated, an adjustment will be made in the
period that the adjustment is identified. If it is determined
that the estimated remaining service period requires revision,
that revision will be made on a prospective basis. Based on its
most recent analysis, management believes that no impairment of
intangible assets exists.
Reclassifications
Certain amounts in the prior year have been reclassified to
conform with the current year presentation. These
reclassifications had no effect on change in accumulated deficit.
Revenue Recognition
The Company's services are provided under Management Services
Agreements and interim management agreements with Affiliated
Practices (management agreements). Net revenue earned by the
Company under the management agreements is equal to approximately
25% of new patient contract balances in the first month of new
patient contracts plus a portion of existing contract balances,
less amounts retained by the Affiliated Practices. The Company
provides practice management and marketing services, facilities
and non-professional personnel and receives 65% to 75% of the
Affiliated Practices' gross patient fee collections as a
management fee. The Affiliated Practices retain all revenue not
paid to the Company as the management fee. The amounts retained
by the Affiliated Practices are dependent on their financial
performance, based in significant part on their cash receipts and
disbursements. If total expenses of an Affiliated Practice are
below prescribed percentages, the Affiliate Practice is entitled
to retain 50% of the difference. Under the terms of the
management agreements, the Affiliated Practices assign their
receivables to the Company in payment of their management fees.
The Company is responsible for collections. The Company also
assumes its portion of patient prepayments, deposits from
patients for dental care to be performed in future periods.
Loss Per Share
In March 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share. This statement established standards
for computing and presenting earnings per share and applies to
entities with publicly traded common stock or potential common
stock. This statement is effective for fiscal years ending after
December 15, 1997. In February 1998, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin No. 98 (SAB
98). This bulletin revises the SEC's guidance for calculating
earnings per share for fiscal years ending after December 15,
1997.
Basic loss per share was determined by dividing net loss by the
weighted average common shares outstanding during the period.
Diluted loss per share is the same as basic loss per share as the
effects of the Company's potential common stock (options to
purchase 233,333 shares of common stock and 2,070,000 warrants in
1997) are antidilutive. During the period preceding the
Company's initial public offering, the Company issued 185,000
shares of common stock that have been treated as "nominal
issuances" in accordance with SAB 98 in the calculation of net
loss per share.
Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk, requires disclosures of any
significant off-balance-sheet and credit risk concentrations.
The Company has no significant off-balance-sheet concentration of
credit risk such as foreign exchange contracts, option contracts
or other foreign hedging arrangements. The Company maintains the
majority of its cash balances with one financial institution.
The Company's accounts receivable credit risk is concentrated
within the United States, and no customer represented a
significant credit risk to the Company.
Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure about fair value of financial
instruments. The Company's financial instruments consist of
cash, cash equivalents, receivables, accounts payable, patient
prepayments and debt instruments. The estimated fair value of
these financial instruments approximate their carrying value.
New Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim
basis. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No.
130 is effective for the fiscal years beginning after December
15, 1997.
In July 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. SFAS No. 131
requires certain financial and supplementary information to be
disclosed on an annual and interim basis for each reportable
segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. Unless impracticable,
companies would be required to restate prior period information
upon adoption.
During 1997, the Emerging Issues Task Force (EITF) of the FASB
issued EITF 97-02, Application of FASB Statement No. 94 and APB
Opinion No. 16 to Physician Practice Management Entities and
Certain Other Entities with Contractual Management Arrangements,
which provides guidance regarding the accounting treatment of
contractual management relationships. The EITF established
specific criteria to be met for consolidating physician
practices. The criteria include the existence by the Physician
Practice Management Entity of a controlling financial interest in
the physician's practice based on term of the agreement, control
of the non-medical operating decisions, and financial interest.
Based on its most recent analysis, management believes the
Company does not have a controlling financial interest in the
physician practices with which it contracts.
Note 3 - Initial Orthodontic Affiliations
On October 6, 1997, the Company entered into Management Services
Agreements with seven Affiliated Practices (Initial Affiliated
Practices) in the United States, simultaneously with the closing
of its initial public offering (see Note 1). These agreements
provide for the purchase by the Company of the equity interests
in the MSOs formed by the selling orthodontists (Initial MSOs)
for consideration ranging from $297,000 to $952,000 for each
Initial MSO. Total consideration related to the affiliations
with the Initial MSO is summarized as follows:
Value of common stock and options issued $1,865,202
Cash paid 1,782,801
Notes payable 142,535
Total $3,790,538
The cost of each of the Initial MSOs has been allocated on the
basis of the estimated fair value of the assets acquired and
liabilities assumed, resulting in management service contract
intangibles of approximately $4.1 million. These allocations may
be adjusted to the extent that management becomes aware of
additional information within one reporting year of the
affiliation date, which results in a material change in the
amount of any contingency or changes in the estimated fair value
of assets acquired and liabilities assumed.
The allocation of the purchase price of the Initial MSOs,
including acquisition costs of approximately $39,000, is as
follows:
Receivables $ 152,090
Property and equipment 305,091
Management service contract intangibles 4,094,126
Patient prepayments ( 219,514)
Assumed liabilities ( 541,255)
$3,790,538
Concurrent with the affiliation with the Initial MSOs, the
Company and each Initial MSO entered into a 20-year Management
Services Agreement, renewable for two additional 10-year periods,
with each Initial Affiliated Practice. The agreement stipulates
that the Initial MSO provide practice management and marketing
services, facilities and non-clinical personnel to the Initial
Affiliated Practices for a monthly fee, generally equal to 65% to
75% of the Initial Affiliated Practice's gross patient fee
collections. If the total expenses of each Initial Affiliated
Practice are below prescribed percentages, the Initial Affiliated
Practice is entitled to receive 50% of the difference. The
Initial Affiliated Practice has 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 records. Each Initial Affiliated Practice has also
entered into an employment agreement, including non-competition
provisions, with each orthodontist employed and has agreed to pay
all salaries for dental professionals, professional licensure and
board certification fees and professional liability insurance
premiums.
Each Affiliated Practitioner has certain rights and obligations
to repurchase, and each Initial MSO has the right to require the
Affiliated Practitioner to repurchase, the non-clinical practice
assets held by such Initial 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
Initial MSO. The Initial MSO also has certain rights to
designate a successor orthodontist to acquire the practice of the
Affiliated Practitioner when the Affiliated Practitioner ceases
practice.
Financial data for the year ended December 31, 1996 related to
the Initial Affiliated Practices are summarized as follows:
Unaudited
Patient revenues $ 4,615,677
Cash collections 4,486,113
Practice expenses 4,076,863
Practice expenses included $1,014,584 in orthodontists'
compensation.
Note 4 - New Affiliated Practices
During the period from the initial public offering, October 6,
1997 through December 31, 1997, the Company completed
affiliations with two new Affiliated Practices.
Total consideration related to the new Affiliated Practices is
summarized as follows:
Value of common stock issued $ 212,000
Cash paid 433,333
Notes payable 298,333
Total $ 943,666
The cost of each of the above new Affiliated Practices has been
allocated on the basis of the estimated fair value of the assets
acquired and liabilities assumed, resulting in management
contract intangibles of approximately $1,040,000. These
allocations may be adjusted to the extent that management becomes
aware of additional information within one reporting year of the
affiliation date which results in a material change in the amount
of any contingency or changes in the estimated fair value of
assets acquired and liabilities assumed.
The allocation of the purchase price of the new Affiliated
Practices, including acquisition costs of approximately $28,000,
is as follows:
Property and equipment $ 116,809
Management service contract intangibles 1,040,061
Patient prepayments ( 119,402)
Assumed liabilities ( 93,802)
$ 943,666
In addition, during 1997, the Company entered into an interim
management agreement with two separate orthodontic practices,
pursuant to which the Company provides management services under
essentially the same terms as its Management Services Agreement,
prior to the completion of the affiliation agreements. During
1998, both of these practices completed their affiliations with
the Company.
Note 5 - Property and Equipment
Property and equipment consist of the following at December 31:
1997 1996
Office equipment $ 45,072 $ 11,212
Dental equipment 272,486 -
Furniture and fixtures 46,132 -
Leasehold improvements 163,138 -
526,828 11,212
Less: accumulated depreciation
and amortization 23,489 1,116
$503,339 $10,096
Depreciation and amortization expense was $22,373 and $1,116 for
the year ended December 31, 1997 and for the period from
inception (August 30, 1996) to December 31, 1996, respectively.
Note 6 - Other Assets
Other assets consist of the following at December 31:
1997 1996
Deferred acquisition costs $ 71,828 $ -
Deferred offering costs - 101,228
Debt financing costs - 38,844
Organization costs 7,820 8,216
Deposits 1,000 -
80,648 148,288
Less: accumulated amortization 345 10,814
Other assets, net $ 80,303 $ 137,474
Deferred acquisition costs include professional fees incurred in
advance of the acquisition of additional Affiliated Practices.
Deferred offering costs include all expenses incurred prior to
December 31, 1996 in connection with the preparation of the
initial public offering. Debt financing costs incurred in
connection with the issuance of notes payable in 1996 were
amortized over the term of the debt.
Note 7 - Long-Term Debt
Long-term debt consisted of the following at December 31:
1997 1996
Note payable of an affiliate practice assumed by the
Company, due in monthly installments ranging from
$100 to $1,213 through December, 2003, with
interest at 13.2% and secured by the personal
guarantee of the affiliated orthodontist. $ 51,948 $ -
Unsecured notes payable to affiliate practices,
issued in connection with affiliation agreement
(see Note 3 and Note 4) due in monthly installments
ranging from $630 to $4,860 through January, 2003,
with interest at 8.5%. 436,868 -
Capitalized lease obligations, due in monthly
installments ranging from $652 to $1,646 through
July, 2002, with interest ranging from 13% to
23% and secured by certain equipment. 55,865 -
Unsecured bridge notes, payable with interest
at 15% and paid in full with proceeds from the
Company's initial public offering (see Note 1). - 575,000
544,681 575,000
Less: current portion 76,130 575,000
$468,551 $ -
Maturities of long-term debt at December 31, 1997 are as follows:
1998 $ 76,130
1999 137,961
2000 105,746
2001 104,896
2002 101,512
Thereafter 18,436
$544,681
The Company issued two series of notes in the aggregate principal
amount of $510,000 and $575,000 in 1997 and 1996, respectively.
The interest on the notes was 16% and 15% per annum and was due
on the earlier of September 30, 1997 or upon consummation of an
initial public offering. The notes were paid in full with the
proceeds of the initial public offering (see Note 1). In
consideration for the purchase of the notes, the Company issued
to the noteholders for nominal value, 60,000 and 115,000 shares
of common stock in 1997 and 1996, respectively, for no additional
payment.
Notes 8 - Stock Option Plan
The Company adopted an Incentive Stock 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 advisors of the Company
at prices to be determined by a committee of the Board of
Directors. On April 28, 1997, the Plan was amended to increase
the number of shares of common stock authorized for issuance
under the Plan to 450,000. The Plan will terminate on January
31, 2007.
The Plan is administered by the Compensation Committee of the
Board of Directors, which has the authority to designate
participants, determine the number and type of options to be
granted, the time at which options are exercisable, the method of
payment and any other terms or conditions of the options.
Options generally vest annually over a three-year period and
generally expire 10 years from the date of grant.
While the Compensation Committee determines the price at which
options may be exercised under the Plan, the exercise price of an
incentive stock option shall be at least 100% (110% for incentive
stock options granted to a 10% stockholder) of the fair value of
the Company's common stock on the date of grant.
The following table summarizes option activity under the Plan:
Weighted
Average
Number Exercise Exercise
Of Shares Price Price
Outstanding, December 31, 1996 - $ - $ -
Granted 370,000 3.00 - 6.00 5.84
Outstanding, December 31, 1997 370,000 $ 3.00 - 6.00 $ 5.84
Exercisable, December 31, 1997 150,000 $6.00 $ 6.00
The following table summarizes information about stock options
outstanding at December 31, 1997:
Number Weighted Weighted
Outstanding Average Average
At Remaining Excise
December 31, Contractual Price
1997 Life Per Share
Exercise prices
$ 3.00 20,000 9.98 $ 3.00
$ 6.00 350,000 9.33 6.00
370,000 $ 5.84
The weighted average remaining contractual life of options
outstanding at December 31, 1997 was 9.37 years. Options
available for future grant under the Plan as of December 31, 1997
were 80,000.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 requires the measurement
of the fair value of stock options or warrants to be included in
the statement of operations or disclosed in the notes to
financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees
under Accounting Principles Board Opinion No. 25 and will elect
the disclosure-only alternative under SFAS No. 123. As of
December 31, 1997, none of the options granted to employees under
the plan have vested and therefore no pro forma disclosure of
compensation expense is necessary.
The Company has computed the compensation expense required under
SFAS No. 123 for options granted in 1997 to non-employees using
the Black-Scholes option pricing model prescribed by SFAS No.
123, using the following assumptions:
December 31, 1997
Risk-free interest rate 6.61%
Expected dividend yield -
Expected lives 7 years
Expected volatility 48%
As of December 31, 1997, the Company granted 150,000 nonqualified
stock options exercisable at $6.00, which are fully vested, to a
consultant as payment for services performed. The Company
recorded $262,500 of non-recurring consulting expense in the
accompanying consolidated statements of operations for the year
ended December 31, 1997 related to this transaction, which
represents the estimated fair value of the services received.
The options are fully exercisable and expire ten years from the
date of grant.
Note 9 - Stockholders' Equity (Deficit)
(a) Preferred Stock
The Company is authorized to issue 500,000 shares of
preferred stock. The preferred stock 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.
(b) Initial Public Offering
Pursuant to the Company's initial public offering (see Note
1), the Company issued 2,070,000 warrants. Each warrant
entitles the registered holder thereof to purchase one share
of common stock at an initial exercise price of $6.60 per
share, at any time during the period commencing April 1, 1998
and terminating September 30, 2002. The warrant exercise
price is subject to adjustment under certain circumstances.
Commencing April 1, 1999, the Company may redeem the
warrants, in whole but not in part, at $.10 per warrant,
provided the average closing bid price of the common stock
equals or exceeds $12.00 per share for a period of time.
In addition, the Company issued 180,000 warrants to its
underwriter. These warrants entitle the holder to purchase
up to 180,000 shares of common stock and/or 180,000 warrants
at an initial exercise price of $9.90 per share of common
stock and $0.165 per warrant, commencing after October 1,
1998 and expiring October 1, 2001.
(c) Reserved Common Stock
The Company has reserved common stock for the following:
Options to purchase common stock 533,333
Warrants to purchase common stock 2,070,000
Underwriter's warrants 360,000
2,963,333
Note 10 - Income Taxes
The Company accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. Under SFAS No. 109, deferred
tax assets or liabilities are computed based on the difference
between the financial statement and income tax basis of assets
and liabilities using the enacted tax rates. Deferred income tax
expense or credits are based on changes in the asset or liability
from period to period.
As of December 31, 1997, the Company had available net operating
loss carryforwards of approximately $2,300,000 available to
reduce future federal income taxes, if any. These carryforwards
expire through 2012 and are subject to review and possible
adjustment by the Internal Revenue Service. The Tax Reform Act
of 1986 limits a corporation's ability to utilize certain net
operating loss carryforwards in the event of a cumulative change
in ownership in excess of 50%, as defined.
The approximate income tax effect of each type of temporary
difference and carryforward and valuation allowance is summarized
as follows:
1997 1996
Net operating losses $ 828,970 $92,845
Other temporary differences (2,707) -
Less: valuation allowance 826,263 92,845
$ - $ -
Due to the uncertainty relating to the timing of realizing the
benefits of its favorable tax attributes in future income tax
returns, the Company has placed a full valuation allowance
against its otherwise recognizable net deferred tax asset.
Note 11 - Related Party Transactions
The Company has an agreement with a private bank and the Chairman
of the Board of Directors (the Consultants), whereby the
Consultants have agreed to provide certain consulting services to
the Company. In August 1996, as consideration for such
services, the Company contingently issued 450,000 shares of
common stock to the Consultants at no cost and simultaneously
placed such shares in escrow. As of December 31, 1996, the
450,000 shares were included in outstanding common stock at their
nominal fair value at the date of issuance with a corresponding
deferred charge.
In April 1997, following the completion of the consulting
services, all of the shares were released from escrow at an
imputed aggregate value of $2,025,000. In addition, the Company
agreed to make cash payments to the Consultants aggregating
$305,000 in 1998.
Total expense of $2,330,000 was recorded as non-recurring
consulting expense in the accompanying consolidated statements of
operations and the $305,000 was recorded as due to related
parties in the accompanying consolidated balance sheets.
During 1997 and 1996, three directors of the Company loaned an
aggregate of $140,000 and $75,000, respectively, to the Company
and received 6,000 shares and 15,000 shares, respectively, of the
Company's common stock in connection therewith (see Note 7). In
addition, three directors performed consulting services for the
Company, prior to the Company's initial public offering for which
they were paid an aggregate of approximately $166,000 and $73,273
in 1997 and 1996, respectively. The Company entered into
employment contracts with two directors and consulting contract
with one director, which became effective upon the completion of
the Company's initial public offering. The Company paid $75,000
in connection with these employment and consulting contracts. In
addition, during 1997, the Company granted two directors an
aggregate of 200,000 stock options exercisable at $6.00 per share
(see Note 8). In December 1997, the Company granted two
directors non-qualified stock options under the Incentive Stock
Option Plan to each acquire 10,000 shares of the Company's common
stock at an exercise price of $3.00 per share.
During 1997, the Company entered into a consulting agreement with
an accounting firm for services relating to the Company's initial
public offering and for the services of the Company's Chief
Financial Officer who is also a principal stockholder of the
accounting firm. The Company paid consulting fees of $203,565 in
1997 in connection with the above services. The Company also
granted the accounting firm 10,000 shares of common stock and non-
qualified stock options under the Stock Incentive Option Plan to
acquire 150,000 shares of the Company's common stock at an
exercise price of $6.00 per share (see Note 8).
The Company entered into an affiliation agreement with a
director, which became effective concurrently with the closing of
the Company's initial public offering. Pursuant to the
affiliation agreement, the Company acquired certain assets of
the Director's orthodontic practice in exchange for a cash
payment of $333,567, 129,721 shares of the Company's common stock
and the assumption of certain liabilities.
During 1997, the Company loaned the President and CEO $100,000
and a director $20,000 in exchange for demand promissory notes,
which bear interest at the prime rate (8.5% at December 31, 1997)
plus 2%. Principal and interest are due upon demand, but not
later than December, 2000.
Note 12 - Commitments and Contingencies
(a)Operating Leases
The Company leases facilities under various operating leases
which expire through October 2017. Future minimum lease
payments as of December 31, 1997 are as follows:
1998 $ 392,000
1999 245,000
2000 218,000
2001 218,000
2002 195,000
Thereafter 902,000
$ 2,170,000
Rent expense for all operating leases was approximately
$86,100 and $1,900 for the year ended December 31, 1997 and
for the period from inception (August 30, 1996) to December
31, 1996, respectively.
(b)Litigation
The Company is not currently a party to any claims, suits or
complaints relating to services and products provided by the
Company or the existing Affiliated Practices, although there
can be no assurance that such claims will not be asserted
against the Company in the future.
Note 13 - Subsequent Events
In January 1998, the Company completed affiliations with five
additional Affiliated Practices (two of which merged with
existing Affiliated Practices) which had generated historical
patient revenue over the prior twelve months of approximately
$3.4 million. Prior patient revenue is not necessarily
indicative of the level of revenue that these Affiliated
Practices may be expected to generate in the future. Total
consideration for these new Affiliated Practices consisted of
approximately $863,000 of common stock (approximately 462,000
shares) and approximately $2.4 million of cash, assumed debt and
notes payable, resulting in management service contract
intangibles of approximately $3.0 million.
Item 8.Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
The information required by this Item 8 is hereby incorporated
by reference to the Company's Current Report on Form 8-K dated
January 14, 1998.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act
The information required by this Item 9 is hereby incorporated
by reference to the Company's definitive proxy statement to be
filed by the Company within 120 days after the close of its
fiscal year.
Item 10. Executive Compensation
The information required by this Item 10 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item 11 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
Item 12. Certain Relationships and Related Transactions
The information required by this Item 12 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Exhibit Description Reference
2.1 Asset Purchase Agreement dated as of A
August 31, 1996 by and between Omega
Orthodontics, Inc. and The Orthodontic
Management Effectiveness Group of
America, LLC
2.2 Form of Affiliation Agreement and A
Agreement and Plan of Merger by and among
Omega Orthodontics, Inc., Robert R.
Schmisseur, D.D.S. and Robert R.
Schmisseur, D.D.S., M.S., P.C., as
amended
2.3 Affiliation Agreement and Agreement and A
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., as amended
2.4 Form of Affiliation Agreement and Asset A
Purchase Agreement by and among Omega
Orthodontics, Inc. and Scott E. Feldman,
D.D.S.
2.5 Form of Affiliation Agreement and Stock A
Purchase Agreement by and between Omega
Orthodontics, Inc. and David T. Grove,
D.M.D.
2.6 Form of Affiliation Agreement and Asset A
Purchase Agreement by and between Omega
Orthodontics, Inc. and David T. Grove,
D.M.D.
2.7 Affiliation Agreement and Agreement and A
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., as amended
2.8 Affiliation Agreement and Agreement and A
Plan of Merger by and among Omega
Orthodontics, Inc., Clark E. Schneekluth,
D.D.S. and Clark E. Schneekluth, D.D.S.,
P.C., as amended
2.9 Affiliation Agreement and Asset Purchase Filed
Agreement by and between Omega Herewith
Orthodontics, Inc. and Leon J. Leonard,
D.D.S.
2.10 Affiliation Agreement and Asset Purchase Filed
Agreement by and between Omega Herewith
Orthodontics, Inc. and David Longworth,
D.D.S.
2.11 Affiliation Agreement and Asset Purchase Filed
Agreement by and between Omega Herewith
Orthodontics, Inc. and Rodney A. Gray,
D.D.S.
2.12 Agreement for the Purchase and Sale of Filed
Assets by and between Sharon M. Crowder, Herewith
D.D.S., Inc. and Omega Orthodontics of
Reseda, Inc.
2.13 Affiliation Agreement and Agreement and Filed
Plan of Merger by and among Omega Herewith
Orthodontics of Woodland Hills, Inc.,
Omega Orthodontics, Inc., Sharon M.
Crowder, D.D.S., Scott E. Feldman, D.D.S.
and Omega Orthodontics of Reseda, Inc.
2.14 Affiliation Agreement and Asset Purchase Filed
Agreement by and among Omega Herewith
Orthodontics, Inc., Richard H. Villa,
D.D.S. and Richard H. Villa, D.D.S., Inc.
2.15 Affiliation Agreement and Agreement and Filed
Plan of Merger by and among Omega Herewith
Orthodontics of Woodland Hills, Inc.,
Omega Orthodontics, Inc., Azani Dental
Services, Inc., Daniel Azani, D.D.S. and
Daniel Azani, D.D.S., Inc.
2.15a Amendment to Affiliation Agreement and Filed
Plan of Merger by and among Omega Herewith
Orthodontics of Woodland Hills, Inc.,
Omega Orthodontics, Inc., Azani Dental
Services, Inc., Daniel Azani, D.D.S. and
Daniel Azani, D.D.S., Inc.
2.16 Affiliation Agreement and Asset Purchase Filed
Agreement by and among Omega Herewith
Orthodontics, Inc., William W. Beazley,
D.D.S. and William W. Beazley, D.D.S.,
Inc.
3.1 Certificate of Incorporation of Omega A
Orthodontics, Inc.
3.2 Certificate of Amendment of Certificate A
of Incorporation of Omega Orthodontics,
Inc. filed February 12, 1997
3.3 By-Laws of Omega Orthodontics, Inc., as A
amended
4.1 Specimen Certificate for Common Stock A
4.2 Form of Subscription Agreement for A
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 A
30, 1997, as amended
4.4 Warrant Agreement by and between Omega A
Orthodontics, Inc. and Continental Stock
Transfer & Trust Company, including form
of Warrant
4.5 Representative's Warrant Agreement by and A
between National Securities Corporation
and Omega Orthodontics, Inc., including
form of Representative's Warrant
4.6 Form of 16% Promissory Notes due June 30, A
1998
10.1 Form of Management Services Agreement by A
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 A
and among a professional corporation to
be formed by Dr. Saydyk, Omega
Orthodontics of Colorado Springs, Inc.
and Omega Orthodontics, Inc.
10.3 Amended and Restated Management Services Filed
Agreement by and among Scott E. Feldman, Herewith
D.D.S., M.S., Inc., Omega Orthodontics of
Woodland Hills, Inc. and Omega
Orthodontics, Inc.
10.4 Form of Management Services Agreement by A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
from Omega Orthodontics, Inc. payable to
Robert R. Schmisseur
10.16 Form of Non-negotiable Promissory Note A
from Omega Orthodontics, Inc. payable to
Theodore G. Saydyk, Jr.
10.17 Form of Non-negotiable Promissory Note A
from Omega Orthodontics, Inc. payable to
Scott E. Feldman
10.18 Form of Non-negotiable Promissory Note A
from Omega Orthodontics, Inc. payable to
David T. Grove
10.19 Form of Non-negotiable Promissory Note A
from Omega Orthodontics, Inc. payable to
Clark E. Schneekluth
10.20 General Assignment and Assumption A
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 A
Robert J. Schulhof and Omega
Orthodontics, Inc.
10.22 INTENTIONALLY OMITTED
10.23* Employment Agreement by and between F.V. A
Elliott and Omega Orthodontics, Inc.
10.24* Omega Orthodontics Incentive Stock Plan, A
as amended
10.25 Subscription Agreement dated as of A
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 A
September 25, 1996 by and between Omega
Orthodontics, Inc. and Dean C. Bellavia.
10.27* Amended and Restated Consulting Agreement A
by and among Omega Orthodontics, Inc.,
The Mayflower Group, Ltd., and C. Joel
Glovsky, as amended
10.27a Amendment dated [March __, 1998] to the Filed
* Amended and Restated Consulting Agreement Herewith
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 A
and between Leonard, Mulherin & Greene,
P.C. and Omega Orthodontics, Inc.
10.29* Consulting Agreement by and between C. A
Joel Glovsky and Omega Orthodontics, Inc.
10.30* Consulting Agreement by and between A
Leonard, Mulherin & Greene, P.C. and
Omega Orthodontics, Inc.
10.31 Subscription Agreement dated as of April A
28, 1997 by and between Omega
Orthodontics, Inc. and David T. Grove
10.32 Management Services Agreement by and Filed
among Leon J. Leonard, D.M.D., P.C., Herewith
Omega Orthodontics of Conyers, Inc. and
Omega Orthodontics, Inc.
10.33 Stock Put/Call Option and Successor Filed
Designation Agreement by and among Leon Herewith
J. Leonard, D.M.D., P.C., Leon J.
Leonard, D.D.S., Omega Orthodontics, Inc.
and Omega Orthodontics of Conyers, Inc.
10.34 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to Leon Herewith
Leonard
10.35 Management Services Agreement by and Filed
among David W. Longworth, P.C., Omega Herewith
Orthodontics of Watertown, Inc. and Omega
Orthodontics, Inc.
10.36 Stock Put/Call Option and Successor Filed
Designation Agreement by and among David Herewith
W. Longworth, P.C., David Longworth,
D.D.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Watertown, Inc.
10.37 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to David W. Herewith
Longworth Trust and Jacquelyn L.
Longworth Trust
10.38 Management Services Agreement by and Filed
among Rodney A. Gray, D.D.S., M.S., Ltd., Herewith
Omega Orthodontics of Reno, Inc. and
Omega Orthodontics, Inc.
10.39 Stock Put/Call Option and Successor Filed
Designation Agreement by and among Rodney Herewith
A. Gray, D.D.S., M.S., Ltd., Rodney A.
Gray, D.D.S., Omega Orthodontics, Inc.
and Omega Orthodontics of Reno, Inc.
10.40 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to Rodney A. Herewith
Gray
10.41 Management Services Agreement by and Filed
among Scott E. Feldman, D.D.S., M.S., Herewith
Inc., Omega Orthodontics of Reseda, Inc.
and Omega Orthodontics, Inc.
10.42 Management Services Agreement by and Filed
among Richard H. Villa, D.M.D., P.C., Herewith
Omega Orthodontics of Virginia, Inc. and
Omega Orthodontics, Inc.
10.43 Stock Put/Call Option and Successor Filed
Designation Agreement by and among Herewith
Richard H. Villa, D.M.D., P.C., Richard
H. Villa, D.M.D., Omega Orthodontics,
Inc. and Omega Orthodontics of Virginia,
Inc.
10.44 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to Richard H. Herewith
Villa, D.M.D.
10.45* Consulting Agreement by and between Dean Filed
C. Bellavia and Omega Orthodontics, Inc. Herewith
10.46 Demand Note dated December 3, 1997 made Filed
by Robert J. Schulhof in favor of Omega Herewith
Orthodontics, Inc.
10.47 Management Services Agreement by and Filed
among Daniel Azani, D.D.S., Inc., Azani Herewith
Dental Services, Inc. and Omega
Orthodontics, Inc.
10.47a Amendment to Management Services Filed
Agreement by and among Daniel Azani, Herewith
D.D.S., Inc., Azani Dental Services, Inc.
and Omega Orthodontics, Inc.
10.48 Stock Put/Call Option and Successor Filed
Designation Agreement by and among Daniel Herewith
Azani, D.D.S., Inc., Daniel Azani,
D.D.S., Azani Dental Services, Inc. and
Omega Orthodontics, Inc.
10.48a Amendment to Stock Put/Call Option and Filed
Successor Designation Agreement by and Herewith
among Daniel Azani, D.D.S., Inc., Daniel
Azani, D.D.S., Azani Dental Services,
Inc. and Omega Orthodontics, Inc.
10.49* Consulting Agreement by and between Peter Filed
I. Wexler and Omega Orthodontics, Inc. Herewith
10.50 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to Daniel Herewith
Azani, D.D.S.
16.1 Letter addressed to the Securities and B
Exchange Commission dated January 15,
1998, from the Company's former auditors,
Ernst & Young LLP, relative to their
agreement with the statements made in
Item 4 of the Company's Current Report on
Form 8-K
21.1 List of Subsidiaries of Omega Filed
Orthodontics, Inc. Herewith
27.1 Financial Data Schedule Filed
Herewith
____________________
A Incorporated by reference to the Company's registration
statement on Form SB-2, as amended (Registration No. 333-
27179). The number set forth herein is the number of the
Exhibit in said registration statement, as amended.
B Incorporated by reference to Exhibit 16.1 to the Company's
Current Report on Form 8-K dated January 14, 1998.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, reference is made to the documents previously
filed with the Securities and Exchange Commission, which documents
are hereby incorporated by reference.
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
OMEGA ORTHODONTICS, INC.
By /s/ Robert J. Schulhof
Robert J. Schulhof,
Chief Executive Officer
In accordance with the Securities Exchange Act, this report has
been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert J.Schulhof Director, President April 14, 1998
Robert J. Schulhof and Chief Executive
Officer (Principal
Executive Officer
/s/Edward M. Mulherin Chief Financial April 14, 1998
Edward M. Mulherin Officer (Principal
Financial and
Accounting Officer
/s/ Dean C. Bellavia Director April 14, 1998
Dean C. Bellavia
/s/John J. Clarke, Jr. Director April 14, 1998
John J. Clarke, Jr.
/s/ Floyd V. Elliott Director April 14, 1998
Floyd V. Elliott
/s/ C. Joel Glovsky Director April 14, 1998
C. Joel Glovsky
/s/ David T. Grove Director April 14, 1998
David T. Grove
EXHIBIT INDEX
Exhibit
No. Exhibit Description Reference
2.1 Asset Purchase Agreement dated as of A
August 31, 1996 by and between Omega
Orthodontics, Inc. and The Orthodontic
Management Effectiveness Group of
America, LLC
2.2 Form of Affiliation Agreement and A
Agreement and Plan of Merger by and among
Omega Orthodontics, Inc., Robert R.
Schmisseur, D.D.S. and Robert R.
Schmisseur, D.D.S., M.S., P.C., as
amended
2.3 Affiliation Agreement and Agreement and A
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., as amended
2.4 Form of Affiliation Agreement and Asset A
Purchase Agreement by and among Omega
Orthodontics, Inc. and Scott E. Feldman,
D.D.S.
2.5 Form of Affiliation Agreement and Stock A
Purchase Agreement by and between Omega
Orthodontics, Inc. and David T. Grove,
D.M.D.
2.6 Form of Affiliation Agreement and Asset A
Purchase Agreement by and between Omega
Orthodontics, Inc. and David T. Grove,
D.M.D.
2.7 Affiliation Agreement and Agreement and A
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., as amended
2.8 Affiliation Agreement and Agreement and A
Plan of Merger by and among Omega
Orthodontics, Inc., Clark E. Schneekluth,
D.D.S. and Clark E. Schneekluth, D.D.S.,
P.C., as amended
2.9 Affiliation Agreement and Asset Purchase Filed
Agreement by and between Omega Herewith
Orthodontics, Inc. and Leon J. Leonard,
D.D.S.
2.10 Affiliation Agreement and Asset Purchase Filed
Agreement by and between Omega Herewith
Orthodontics, Inc. and David Longworth,
D.D.S.
2.11 Affiliation Agreement and Asset Purchase Filed
Agreement by and between Omega Herewith
Orthodontics, Inc. and Rodney A. Gray,
D.D.S.
2.12 Agreement for the Purchase and Sale of Filed
Assets by and between Sharon M. Crowder, Herewith
D.D.S., Inc. and Omega Orthodontics of
Reseda, Inc.
2.13 Affiliation Agreement and Agreement and Filed
Plan of Merger by and among Omega Herewith
Orthodontics of Woodland Hills, Inc.,
Omega Orthodontics, Inc., Sharon M.
Crowder, D.D.S., Scott E. Feldman, D.D.S.
and Omega Orthodontics of Reseda, Inc.
2.14 Affiliation Agreement and Asset Purchase Filed
Agreement by and among Omega Herewith
Orthodontics, Inc., Richard H. Villa,
D.D.S. and Richard H. Villa, D.D.S., Inc.
2.15 Affiliation Agreement and Agreement and Filed
Plan of Merger by and among Omega Herewith
Orthodontics of Woodland Hills, Inc.,
Omega Orthodontics, Inc., Azani Dental
Services, Inc., Daniel Azani, D.D.S. and
Daniel Azani, D.D.S., Inc.
2.15a Amendment to Affiliation Agreement and Filed
Plan of Merger by and among Omega Herewith
Orthodontics of Woodland Hills, Inc.,
Omega Orthodontics, Inc., Azani Dental
Services, Inc., Daniel Azani, D.D.S. and
Daniel Azani, D.D.S., Inc.
2.16 Affiliation Agreement and Asset Purchase Filed
Agreement by and among Omega Herewith
Orthodontics, Inc., William W. Beazley,
D.D.S. and William W. Beazley, D.D.S.,
Inc.
3.1 Certificate of Incorporation of Omega A
Orthodontics, Inc.
3.2 Certificate of Amendment of Certificate A
of Incorporation of Omega Orthodontics,
Inc. filed February 12, 1997
3.3 By-Laws of Omega Orthodontics, Inc., as A
amended
4.1 Specimen Certificate for Common Stock A
4.2 Form of Subscription Agreement for A
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 A
30, 1997, as amended
4.4 Warrant Agreement by and between Omega A
Orthodontics, Inc. and Continental Stock
Transfer & Trust Company, including form
of Warrant
4.5 Representative's Warrant Agreement by and A
between National Securities Corporation
and Omega Orthodontics, Inc., including
form of Representative's Warrant
4.6 Form of 16% Promissory Notes due June 30, A
1998
10.1 Form of Management Services Agreement by A
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 A
and among a professional corporation to
be formed by Dr. Saydyk, Omega
Orthodontics of Colorado Springs, Inc.
and Omega Orthodontics, Inc.
10.3 Amended and Restated Management Services Filed
Agreement by and among Scott E. Feldman, Herewith
D.D.S., M.S., Inc., Omega Orthodontics of
Woodland Hills, Inc. and Omega
Orthodontics, Inc.
10.4 Form of Management Services Agreement by A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
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 A
from Omega Orthodontics, Inc. payable to
Robert R. Schmisseur
10.16 Form of Non-negotiable Promissory Note A
from Omega Orthodontics, Inc. payable to
Theodore G. Saydyk, Jr.
10.17 Form of Non-negotiable Promissory Note A
from Omega Orthodontics, Inc. payable to
Scott E. Feldman
10.18 Form of Non-negotiable Promissory Note A
from Omega Orthodontics, Inc. payable to
David T. Grove
10.19 Form of Non-negotiable Promissory Note A
from Omega Orthodontics, Inc. payable to
Clark E. Schneekluth
10.20 General Assignment and Assumption A
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 A
Robert J. Schulhof and Omega
Orthodontics, Inc.
10.22 INTENTIONALLY OMITTED
10.23* Employment Agreement by and between F.V. A
Elliott and Omega Orthodontics, Inc.
10.24* Omega Orthodontics Incentive Stock Plan, A
as amended
10.25 Subscription Agreement dated as of A
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 A
September 25, 1996 by and between Omega
Orthodontics, Inc. and Dean C. Bellavia.
10.27* Amended and Restated Consulting Agreement A
by and among Omega Orthodontics, Inc.,
The Mayflower Group, Ltd., and C. Joel
Glovsky, as amended
10.27a Amendment dated [March __, 1998] to the Filed
* Amended and Restated Consulting Agreement Herewith
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 A
and between Leonard, Mulherin & Greene,
P.C. and Omega Orthodontics, Inc.
10.29* Consulting Agreement by and between C. A
Joel Glovsky and Omega Orthodontics, Inc.
10.30* Consulting Agreement by and between A
Leonard, Mulherin & Greene, P.C. and
Omega Orthodontics, Inc.
10.31 Subscription Agreement dated as of April A
28, 1997 by and between Omega
Orthodontics, Inc. and David T. Grove
10.32 Management Services Agreement by and Filed
among Leon J. Leonard, D.M.D., P.C., Herewith
Omega Orthodontics of Conyers, Inc. and
Omega Orthodontics, Inc.
10.33 Stock Put/Call Option and Successor Filed
Designation Agreement by and among Leon Herewith
J. Leonard, D.M.D., P.C., Leon J.
Leonard, D.D.S., Omega Orthodontics, Inc.
and Omega Orthodontics of Conyers, Inc.
10.34 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to Leon Herewith
Leonard
10.35 Management Services Agreement by and Filed
among David W. Longworth, P.C., Omega Herewith
Orthodontics of Watertown, Inc. and Omega
Orthodontics, Inc.
10.36 Stock Put/Call Option and Successor Filed
Designation Agreement by and among David Herewith
W. Longworth, P.C., David Longworth,
D.D.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Watertown, Inc.
10.37 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to David W. Herewith
Longworth Trust and Jacquelyn L.
Longworth Trust
10.38 Management Services Agreement by and Filed
among Rodney A. Gray, D.D.S., M.S., Ltd., Herewith
Omega Orthodontics of Reno, Inc. and
Omega Orthodontics, Inc.
10.39 Stock Put/Call Option and Successor Filed
Designation Agreement by and among Rodney Herewith
A. Gray, D.D.S., M.S., Ltd., Rodney A.
Gray, D.D.S., Omega Orthodontics, Inc.
and Omega Orthodontics of Reno, Inc.
10.40 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to Rodney A. Herewith
Gray
10.41 Management Services Agreement by and Filed
among Scott E. Feldman, D.D.S., M.S., Herewith
Inc., Omega Orthodontics of Reseda, Inc.
and Omega Orthodontics, Inc.
10.42 Management Services Agreement by and Filed
among Richard H. Villa, D.M.D., P.C., Herewith
Omega Orthodontics of Virginia, Inc. and
Omega Orthodontics, Inc.
10.43 Stock Put/Call Option and Successor Filed
Designation Agreement by and among Herewith
Richard H. Villa, D.M.D., P.C., Richard
H. Villa, D.M.D., Omega Orthodontics,
Inc. and Omega Orthodontics of Virginia,
Inc.
10.44 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to Richard H. Herewith
Villa, D.M.D.
10.45* Consulting Agreement by and between Dean Filed
C. Bellavia and Omega Orthodontics, Inc. Herewith
10.46 Demand Note dated December 3, 1997 made Filed
by Robert J. Schulhof in favor of Omega Herewith
Orthodontics, Inc.
10.47 Management Services Agreement by and Filed
among Daniel Azani, D.D.S., Inc., Azani Herewith
Dental Services, Inc. and Omega
Orthodontics, Inc.
10.47a Amendment to Management Services Filed
Agreement by and among Daniel Azani, Herewith
D.D.S., Inc., Azani Dental Services, Inc.
and Omega Orthodontics, Inc.
10.48 Stock Put/Call Option and Successor Filed
Designation Agreement by and among Daniel Herewith
Azani, D.D.S., Inc., Daniel Azani,
D.D.S., Azani Dental Services, Inc. and
Omega Orthodontics, Inc.
10.48a Amendment to Stock Put/Call Option and Filed
Successor Designation Agreement by and Herewith
among Daniel Azani, D.D.S., Inc., Daniel
Azani, D.D.S., Azani Dental Services,
Inc. and Omega Orthodontics, Inc.
10.49* Consulting Agreement by and between Peter Filed
I. Wexler and Omega Orthodontics, Inc. Herewith
10.50 Non-negotiable Promissory Note from Omega Filed
Orthodontics, Inc. payable to Daniel Herewith
Azani, D.D.S.
16.1 Letter addressed to the Securities and B
Exchange Commission dated January 15,
1998, from the Company's former auditors,
Ernst & Young LLP, relative to their
agreement with the statements made in
Item 4 of the Company's Current Report on
Form 8-K
21.1 List of Subsidiaries of Omega Filed
Orthodontics, Inc. Herewith
27.1 Financial Data Schedule Filed
Herewith
____________________
A Incorporated by reference to the Company's registration
statement on Form SB-2, as amended (Registration No. 333-
27179). The number set forth herein is the number of the
Exhibit in said registration statement, as amended.
B Incorporated by reference to Exhibit 16.1 to the Company's
Current Report on Form 8-K dated January 14, 1998.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, reference is made to the documents previously
filed with the Securities and Exchange Commission, which documents
are hereby incorporated by reference.
EXHIBIT 2.9
2
--
AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT
THIS AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT is
entered into as of the 29th day of December 1997 by and between
Omega Orthodontics, Inc., a Delaware corporation ("OMEGA" or
"Surviving Entity"), and Leon J. Leonard, D.D.S. ("Dr. Leonard"),
who is duly licensed to practice orthodontics in the state of
Georgia (the "State").
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. Dr. Leonard owns and operates an orthodontic practice
(the "Orthodontic Practice") with offices located at 1455 Old
McDonough Road, Conyers, Georgia 30207 and 4122 Tate Street,
Covington, Georgia 30209 (the "Orthodontic Offices") and
furnishes orthodontic care to the general public. As the owner
and operator of the Orthodontic Practice, Dr. Leonard is the
owner of a leasehold interest in leases of the Orthodontic
Offices, the owner of certain personal property located at the
Orthodontic Offices, a party to certain contracts relating to the
Orthodontic Practice and the beneficiary of other rights related
to the Orthodontic Practice.
C. OMEGA has conducted a review of the Orthodontic
Practice, and has reviewed the Orthodontic Practice's financial
statement (the "Financial Statement"), a copy of which is
attached hereto as Exhibit A . Based on its review of the
Orthodontic Practice and the Financial Statement, OMEGA has
issued the report (the "Report"), a copy of which has been
furnished to Dr. Leonard. Dr. Leonard has reviewed the Report
and OMEGA's literature, and agrees with the Report and the
concepts of OMEGA's Exceptional Practice.
D. Subject to the terms and conditions of this Agreement,
OMEGA and Dr. Leonard have determined that it is in the best
interests of each for OMEGA to purchase from Dr. Leonard certain
of the assets comprising the Orthodontic Practice as provided in
Section 1.1 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. ASSET PURCHASE
1.1 Purchase; Consideration and Payment.
(a) At the Closing (as hereinafter defined) and subject to
the terms and conditions hereinafter set forth, Dr. Leonard
agrees to sell, transfer, convey, assign and deliver to OMEGA,
and OMEGA agrees to purchase and acquire from Dr. Leonard and
take delivery of, for the consideration hereinafter provided, all
of Dr. Leonard's right, title and interest in and to all of the
assets of the Orthodontic Practice, wheresoever situated and
whether or not specifically referred to herein or in any
instrument of conveyance delivered pursuant hereto (such assets
and rights of Dr. Leonard are collectively referred to as the
"Assets"), excepting therefrom the assets listed on Schedule I
to the Bill of Sale and Assignment (the "Bill of Sale") attached
hereto as Exhibit D (the "Excluded Assets"), and including
without limitation the following Assets:
(1) leases of the Orthodontic Offices, including all
tenant's rights and remedies (the "Leases");
(2) all books, records, machinery and equipment used or
owned by the Orthodontic Practice and all other tangible and
intangible personal property at or related to the Orthodontic
Offices, whether or not located at the Orthodontic Offices, or to
the Orthodontic Practice conducted therein, whether or not
located at the Orthodontic Offices;
(3) all Contracts (as defined below in Section 2.1);
(4) all prepaid claims, prepaid taxes and other prepaid
expense items and deferred charges, credits, advance payments,
security and other deposits made by Dr. Leonard to any other
person relating to Orthodontic Practice;
(5) any rights of Dr. Leonard pertaining to any
counterclaims, set-offs or defenses he may have with respect to
any of the liabilities assumed by OMEGA; and
(6) any other rights related in any way whatsoever to the
Orthodontic Practice or the Orthodontic Offices;
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 Closing), without any further
action on the part of any holder thereof, for an aggregate
consideration (the "Consideration") of:
(i) Two Hundred Thirty Three Thousand, Three Hundred
Thirty Four Dollars ($233,334) in cash (the "Cash
Component"), such Cash Component to be paid by wire transfer
to such account as Dr. Leonard shall specify prior to the
Closing (as defined below);
(ii) Two Hundred Thirty Three Thousand, Three Hundred
Thirty Three Dollars ($233,333) to be represented by a
promissory note (the "Purchase Note") payable to Dr. Leonard
(the "Note Component") in the form attached hereto as
Exhibit B and secured by a security agreement in a form
mutually agreeable to the parties; and
(iii) Two Hundred Thirty Three Thousand, Three Hundred
Thirty Three Dollars ($233,333) to be represented by
issuance to Dr. Leonard of shares of OMEGA common stock
("OMEGA Stock") based on a value per share equal to the
average of the closing prices for OMEGA Stock on The Nasdaq
SmallCap Market for each business day (Monday through
Friday, not including legal holidays) of the calendar week
ending the Friday immediately preceding the Closing (the
"Stock Component"), which shall thereupon be issued to Dr.
Leonard, fully paid and nonassessable.
1.2 Adjustment; Allocation.
(a) The Consideration is based on the value of the Assets
as determined by OMEGA from the information set forth 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 Practice which
have accrued prior to the Closing 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 Practice. As used herein, Average shall mean an
average of the Accounts Payable of the Orthodontic Practice using
the last twelve months prior to the end of the month immediately
preceding the Closing.
(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.
(d) The parties hereby agree to allocate the Consideration
among the Assets in accordance with Section 1060 of the Internal
Revenue Code (the "Code") on the basis of the fair market value
of the Assets, as of the Closing (which fair market value the
parties agree is equal to the book value of the Assets), which
allocation shall be reduced to writing and acknowledged by the
parties hereto within thirty (30) days following the Closing.
The parties agree to file timely any information that may be
required to be filed pursuant to regulations promulgated under
Section 1060(b) of the Code. The parties further agree that they
shall report the federal, state, municipal, foreign and local and
other tax consequences of the purchase and sale hereunder in a
manner consistent with the allocation determined pursuant to this
section, and that they shall not take any position inconsistent
therewith in connection with any tax return, refund claim,
litigation or otherwise.
1.3 Time and Place of Closing. The closing of the
transactions contemplated hereby (herein called the "Closing")
shall be held at the offices of Robinson & Cole, One Boston
Place, Boston, Massachusetts 02108 at 9:00 a.m. Eastern Standard
Time on December 29, 1997 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 January 31, 1998.
1.4 Delivery of Records, Contracts; Transfer of Accounts.
At the Closing, Dr. Leonard shall deliver or cause to be
delivered to OMEGA:
(a) all of the Assets, including without limitation, books,
records, leases, contracts, employment agreements, non-compete
agreements, commitments and rights relating to the Orthodontic
Practice, with such rights of transfer so as to allow OMEGA 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 Dr. Leonard
(and any successor) as a co-insured or otherwise assigning to
OMEGA and its successor the full benefits thereof.
(c) any documentation necessary for the transfer of any of
the Assets, including the Bill of Sale, together with any
warranty or other documentation. Dr. Leonard shall cooperate
with OMEGA in the transfer of any utility accounts for the
Orthodontic Offices.
ARTICLE II. ASSUMED LIABILITIES
2.1 Contracts For purposes of this Article II the term
"Contracts" shall mean only those leases, licenses, permits,
contracts, subleases, registrations, authorizations, commitments,
purchase orders, contracts to purchase materials, contracts to
perform or receive services (including work in process) and
supplies, and all other agreements (whether written or oral)
that relate to the Orthodontic Practice and are set forth on
Exhibit Y attached hereto.
2.2 Transfer. At the Closing, Dr. Leonard shall assign and
transfer to OMEGA all of Dr. Leonard's right, title and interest
in and to the Contracts and OMEGA shall assume and agree to
perform all obligations and liabilities on the part of Dr.
Leonard under the Contracts accruing on and after the Closing;
provided that to the extent that the assignment of any Contract
is not permitted without the consent of the other party or
parties to such Contract, this Agreement shall not constitute an
agreement to assign such Contract if such consent is not given;
and provided further that Dr. Leonard and OMEGA, as appropriate,
shall use all reasonable efforts to obtain such consents, it
being understood that such reasonable efforts shall not include
any requirement to offer or grant financial accommodations to any
third party.
2.3 Assumption of Liabilities by OMEGA. At the Closing,
Dr. Leonard shall assign to OMEGA, and OMEGA shall assume and
pay, perform and discharge, and indemnify and hold Dr. Leonard
harmless from and against, the following obligations and
liabilities of Dr. Leonard, and none other (collectively, the
"Assumed Liabilities"): all obligations and liabilities on the
part of Dr. Leonard under the Contracts arising on and after the
Closing.
2.4 No Enlargement. The assumption by OMEGA of the Assumed
Liabilities shall not enlarge any rights or remedies of any third
party under any Contract with Dr. Leonard. OMEGA agrees to
indemnify, defend and hold Dr. Leonard and his employees,
harmless from and against any and all liability, loss, cost,
damage and/or expense (including, without limitation, reasonable
attorneys' fees and costs) pertaining to the Assumed Liabilities.
2.5 No Other Liabilities Assumed. OMEGA and Dr. Leonard
intend that OMEGA shall not assume or be obligated to pay,
perform or discharge any of Dr. Leonard's obligations other than
the Assumed Liabilities specified in Section 2.3. Except for the
Assumed Liabilities specified in Section 2.3, OMEGA and Dr.
Leonard expressly agree OMEGA is acquiring the Assets free and
clear of all liens, claims and encumbrances.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Leonard 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. LEONARD
Dr. Leonard hereby covenants and agrees with OMEGA as
follows:
4.1 Conduct of Business. Between the date of this
Agreement and the Closing, he will do the following unless OMEGA
shall otherwise consent in writing:
(a) conduct his 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 Assets;
(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 offering patients discounts of five
percent (5%) or more for prepayments of fees for service;
(e) refrain from selling, assigning or otherwise
transferring accounts receivable to any bank, finance company or
other third party;
(f) maintain accounts payable at levels consistent
with past practices;
(g) use his best efforts to keep available his present
employees and to preserve the goodwill of all patients,
suppliers, and others having business relations with him;
(h) not commit or fail to commit any act which would
cause Dr. Leonard to suffer the revocation, suspension or
limitation of Dr. Leonard's license; and
(i) permit OMEGA and its authorized representatives to
have full access to all his properties, assets, records, tax
returns, records, contracts and documents and furnish to OMEGA or
its authorized representatives such financial and other
information with respect to his business or properties as OMEGA
may from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, he
will have obtained all assignments, authorizations, consents and
permits of others required to permit the consummation by Dr.
Leonard 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, he shall give detailed written notice
thereof to and shall use his best efforts to prevent or promptly
remedy the same.
4.4 Consummation of Agreement. He shall use his 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 hereby covenants and agrees with Dr. Leonard as
follows:
5.1 Authorization from Others. Prior to the Closing, it
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. It 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 VI will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the
representations and warranties of Dr. Leonard contained in
Schedule 1 shall be true and correct as though made on and as of
the Closing, and Dr. Leonard shall have performed all of his
obligations hereunder which by the terms hereof are to be
performed on or before the Closing.
6.2 New PC. Dr. Leonard shall have formed a new
professional entity (the "New PC") under the laws of the State in
order to commence the practice of orthodontics through the New
PC. Dr. Leonard 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 at the Closing
or within 15 days thereafter; 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. Leonard shall have executed and
delivered, or shall have caused the New PC to execute and
deliver, to 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 [INTENTIONALLY OMITTED]
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. Dr. Leonard shall, at OMEGA's request and
expense, notify all patients and obligors of accounts receivable,
and third party payors and others designated by OMEGA, of the
Asset purchase and the other transactions contemplated hereunder
pursuant to notices in a form mutually acceptable to the parties
and which is comparable in scope to the form attached hereto as
Exhibit C.
6.7 Financial Condition. The financial condition of the
Orthodontic Practice 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 Practice, nor any material loss or
damage to the Assets, whether or not insured, which materially
affects the ability of the Orthodontic Practice to conduct its
business. Dr. Leonard 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. Leonard and the Orthodontic
Practice 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
professional status of Dr. Leonard or the business of the
Orthodontic Practice or in the condition of the Assets or the
prospects (financial or otherwise) of the Orthodontic Practice
from the information provided prior to the date hereof. As used
herein, Due Diligence shall mean, without limitation, the results
of any investigations or analyses conducted by or on behalf of
OMEGA (financial or otherwise) related to, or otherwise deemed
material by OMEGA, regarding Dr. Leonard and the Orthodontic
Practice, 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 DR. LEONARD
The obligations of Dr. Leonard 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 VII 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. Leonard 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 [INTENTIONALLY OMITTED]
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.
Leonard 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. Leonard 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. Leonard, his
accountants and attorneys, reasonable access to such books and
records for the purpose of preparing such tax returns of Dr.
Leonard as may be required after the Closing and for other proper
purposes approved by OMEGA.
8.3 License. Dr. Leonard shall maintain all licenses
necessary to practice orthodontics in the State. Dr. Leonard
shall not commit or fail to commit any act which would cause Dr.
Leonard or the New PC to suffer the revocation, suspension or
limitation of Dr. Leonard's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Leonard. Subject to the
limitations set forth in Section 9.3, Dr. Leonard 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 Dr. Leonard 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 its 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. Leonard
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. Leonard 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. Leonard 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.
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 by Dr. Leonard, or Dr. Leonard's
transferees in liquidation, within 30 days after notice thereof
is given by OMEGA. In the event Dr. Leonard 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 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 OMEGA and 50% by the New PC and Dr. Leonard.
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. Leonard
if the conditions stated in Article VII have not been satisfied
at or prior to the Closing.
(b) [INTENTIONALLY OMITTED]
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. Leonard, to:
Leon J. Leonard, D.D.S.
1455 Old McDonough Road
Conyers, Georgia 30207
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 either of the parties without the prior
written consent of the other party.
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 the Closing represents the fair
market value of the Assets and is not in any way related to or
dependent upon referrals by and between OMEGA and Dr. Leonard.
10.10 Further Assurances. Following the execution of this
Agreement, Dr. Leonard 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.
INTENTIONALLY LEFT BLANK
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/ Leon J. Leonard, D.D.S.
Printed Name: Leon J. Leonard, D.D.S.
OMEGA ORTHODONTICS, INC.
By:/s/ Robert J. Schulhof
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
Exhibit A
Financial Statement
[DR. LEONARD PROVIDE]
Exhibit B
NON-NEGOTIABLE PROMISSORY NOTE
$233,333.00 Acton, California
_________ ___, 199__
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware
corporation ("Omega"), promises to pay to Dr. Leon Leonard ("Dr.
Leonard") at 1455 Old McDonough Road, Conyers, Georgia 30207 or
other location specified by Dr. Leonard in writing, Two Hundred
Thirty Three Thousand Three Hundred Thirty Three Dollars
($233,333.00) 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 with
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.
Leonard, 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 without penalty or premium, upon
written notice to Dr. Leonard.
5. Expenses. Omega agrees to pay all expenses, including
reasonable attorney's fees, which Dr. Leonard may incur in
effecting collection of this Note upon default or at maturity.
6. Delays. Dr. Leonard 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. Leonard. 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. Leonard 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.
Leonard in writing.
10. Governing Law. This Note shall be deemed to be a
Georgia instrument, and all rights and obligations hereunder
shall be governed by the laws of the State of Georgia.
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
Exhibit C
Notice
__________________, 1998
[Name and address
of Patient/Account Debtor/Third Party Payors/Others]
Re: Dr. Leon J. Leonard, D.D.S.
Ladies and Gentlemen:
I am pleased to inform you that my practice has become
affiliated with Omega Orthodontics, Inc., a nationwide
orthodontic practice management company. My affiliation with
Omega affords me the opportunity to provide my patients with
professional billing, collection and other management systems,
thereby permitting me to continue to focus on providing quality
orthodontic care.
Commencing immediately and until further notice from Omega
and myself, I direct you to pay all amounts owing and payable
to Leon J. Leonard, D.D.S. and [New PC] in the manner and to the
place specified in any notice Omega sends to you. In addition,
I consent to the provisions of any such notice from Omega to you.
Thank you for your cooperation; should you have any
questions, please contact the undersigned.
Very truly yours,
___________________________
Leon J. Leonard, D.D.S.
[New PC]
By _________________________
Leon J. Leonard, D.D.S.,
President
Exhibit D
BILL OF SALE AND ASSIGNMENT
BILL OF SALE AND ASSIGNMENT
The undersigned, Leon J. Leonard, D.D.S., ("Dr. Leonard")
for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, hereby sells, assigns,
transfers, delivers and conveys to Omega Orthodontics, Inc., a
Delaware corporation, having a usual place of business in Acton,
California ("OMEGA"), all of his right, title and interest in
and to all of the assets of the orthodontic practice operated by
Dr. Leonard (the "Orthodontic Practice") at 1455 Old McDonough
Road, Conyers, Georgia 30207 and 4122 Tate Street, Covington,
Georgia 30209, wheresoever situated and whether or not
specifically referred to herein (such assets and rights of Dr.
Leonard are collectively referred to as the "Assets"), excepting
therefrom the assets listed on Schedule I (the "Excluded
Assets"), attached hereto and made a part hereof, and including
without limitation, the following Assets:
(a) leases at 1455 Old McDonough Road, Conyers, Georgia
30207 and 4122 Tate Street, Covington, Georgia 30209 (the
"Orthodontic Offices"), including all tenant's rights and
remedies (the "Leases");
(b) all books, records, machinery and equipment
("Equipment"), used or owned by the Orthodontic Practice, and all
other tangible and intangible personal property at or related to
the Orthodontic Offices, whether or not located at the
Orthodontic Offices, or to the Orthodontic Practice conducted
therein, whether or not located at the Orthodontic Offices
(c) all leases, licenses, permits, contracts, subleases,
registrations, authorizations, commitments, purchase orders,
contracts to purchase materials, contracts to perform or receive
services (including work in process) and supplies, and all other
agreements (whether written or oral) relating to the Orthodontic
Practice listed on the attached Exhibit Y (the "Contracts");
(d) all prepaid claims, prepaid taxes and other prepaid
expense items and deferred charges, credits, advance payments,
security and other deposits made by Dr. Leonard to any other
person relating to the Orthodontic Practice;
(e) any rights of Dr. Leonard pertaining to any
counterclaims, set-offs or defenses he may have with respect to
any of the liabilities assumed by OMEGA; and
(f) any other rights related in any way whatsoever to the
Orthodontic Practice or the Orthodontic Offices.
Dr. Leonard represents that he has good and marketable title
in fee simple to all of the Assets, free of liens and
encumbrances. All of the Assets are in good repair, have been
well maintained, substantially conform with all applicable
ordinances, regulations and zoning or other laws. The Equipment
is in good working order.
OMEGA assumes and agrees to pay, perform and discharge, and
indemnify and hold Dr. Leonard harmless from and against, the
following obligations and liabilities of Dr. Leonard, and none
other: (a) obligations and liabilities under the Lease and the
Contracts arising on and after the Closing and any and all
claims, liabilities, losses, costs, damages or expenses
(including reasonable attorneys' fees and expenses) resulting
from or arising out of ownership of the Assets or the operation
and maintenance of the Orthodontic Practice, or caused by or
occurring upon the Assets, on and after the Closing (the "Assumed
Liabilities").
The assumption by OMEGA of the Assumed Liabilities shall not
enlarge any rights or remedies of any third party under any
Contract with Dr. Leonard. OMEGA agrees to indemnify, defend and
hold Dr. Leonard and his employees, harmless from and against any
and all liability, loss, cost, damage and/or expense (including,
without limitation, reasonable attorneys' fees and costs)
pertaining to the Assumed Liabilities.
OMEGA and Dr. Leonard intend that OMEGA shall not assume or
be obligated to pay, perform or discharge any of Dr. Leonard's
obligations other than the Assumed Liabilities. Except for the
Assumed Liabilities, OMEGA and Dr. Leonard expressly agree that
OMEGA is acquiring the Assets free and clear of all liens, claims
and encumbrances.
This Bill of Sale and Assignment is executed and delivered
in connection with the Affiliation Agreement and Asset Purchase
Agreement entered into by and between Dr. Leonard and OMEGA dated
__________ __, 199__.
WITNESS the execution under seal this ___ day of
___________, 199__.
___________________________
Leon J. Leonard
Schedule I
Excluded Assets
1. Personal library
2. Personal two drawer file cabinet
3. Personal 386 computer, laser jet printer, and ink jet
printer -- not linked to OPMS
office management system
4. 1920's Coca Cola cooler used for orthodontic appliance
storage
5. Plaques exhibiting dental license, degrees, awards,
expressions of appreciation
6. Assembled documentation and records of cases presented for
American Board
of Orthodontics certification
7. Personal family photographs
Exhibit Y
List of Contracts
1. Computer maintenance agreement OPMS orthodontic software
company -- $1,225.00
annual software company
2. BMK grounds maintenance agreement -- landlord contracts for
shrubs and lawn
service -- $41.68 monthly
3. All current contracts to provide orthodontic services
Exhibit E
Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
Executed copies of even date herewith have been delivered to the
parties.
Schedule 1
Representations and Warranties of
Dr. Leonard to OMEGA
Dr. Leonard hereby represents and warrants to OMEGA as
follows:
1. The Orthodontic Practice. The Assets of the
Orthodontic Practice are owned 100% by Dr. Leonard. Dr. Leonard
has the full power to conduct business as currently conducted by
the Orthodontic Practice and to own and lease the property he
purports to own.
2. Authorization of Transaction. All necessary action has
been taken by Dr. Leonard to authorize the execution of this
Agreement by Dr. Leonard, and the delivery and performance of
this Agreement and the transactions contemplated hereby, and this
Agreement is the valid and binding obligation of Dr. Leonard,
enforceable against Dr. Leonard 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) a default in the performance of any obligation, agreement or
condition of any debt instrument from Dr. Leonard 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; (b) a default of or breach of (with or
without the passage of time or the giving of notice) any other
contract to which Dr. Leonard is a party or by which he or the
Assets are bound; or (c) any violation of any law, regulation,
administrative order or judicial order applicable to Dr. Leonard,
the Orthodontic Practice or the 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) 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. Leonard is a
party, or give any person the right to accelerate any
indebtedness or terminate any right; (ii) 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 Dr. Leonard is a party or by which he or the Assets are
bound; or (iii) result in a violation of any law, regulation,
administrative order or judicial order applicable to Dr. Leonard,
the Orthodontic Practice or the 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 Dr. Leonard
do not require the consent, waiver, approval, authorization,
exemption of or giving of notice to any governmental authority.
5. Investigations and Licenses.
(a) Dr. Leonard has all necessary licenses to practice
orthodontics in the State.
(b) Dr. Leonard is not subject to any investigation,
whether threatened, current or pending, under which Dr. Leonard
may be required to forfeit or suffer the revocation, suspension
or limitation of Dr. Leonard's license to practice orthodontics
and Dr. Leonard is not 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 Practice.
To the best knowledge of Dr. Leonard, the Financial Statement is
complete and correct and fairly presents in all material respects
the financial position of the Orthodontic Practice 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. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, Dr.
Leonard has good and marketable title in fee simple to all of
the Assets, including without limitation, all personal property,
machinery and equipment used or owned by the Orthodontic Practice
(the "Equipment"), free of liens and encumbrances (the
"Property"). All the Property owned or leased by Dr. Leonard 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 practice or person owns any of the assets
necessary for the operation of the Orthodontic Practice. The
Orthodontic Practice does not operate any of its practice through
any other entities or persons.
9. Payment of Taxes. Dr. Leonard 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 purchase of the Assets pursuant to this
Agreement shall be paid or provided for by Dr. Leonard after the
Closing out of the Consideration to be received upon consummation
of this Agreement.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, Dr. Leonard
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)
relating to the Orthodontic Practice, 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 Practice 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 Dr. Leonard or
the Orthodontic Practice, 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 Dr. Leonard or the Orthodontic Practice;
(ii) any mortgage, encumbrance or lien placed on any
of 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 Dr.
Leonard relating to the Orthodontic Practice 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 Dr. Leonard,
threatened against the Orthodontic Practice or Dr. Leonard, 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 Dr. Leonard, threatened against or involving
Dr. Leonard or the Orthodontic Practice, 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 Practice or Dr. Leonard 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. Leonard or the
Orthodontic Practice.
12. Insurance. Dr. Leonard has possessed adequate
occurrence professional liability coverage for the five (5) years
prior to the date of this Agreement protecting the Orthodontic
Practice and Dr. Leonard from any professional malpractice
liability that might arise because of the Orthodontic Practice's
or Dr. Leonard'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. Leonard and the New PC.
The Orthodontic Practice possesses adequate insurance coverage
for its Property.
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Leonard and
Orthodontic Practice to OMEGA
NONE
Schedule 2
Representations and Warranties of
OMEGA to Dr. Leonard
OMEGA hereby represents and warrants to Dr. Leonard 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.
EXHIBIT 2.10
2
-
AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT
THIS AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT is
entered into as of the 1st day of January 1998, by and between
Omega Orthodontics, Inc., a Delaware corporation ("OMEGA" or
"Surviving Entity"), and David Longworth, D.D.S. ("Dr.
Longworth"), who is duly licensed to practice orthodontics in the
state of South Dakota (the "State").
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. Dr. Longworth owns and operates an orthodontic practice
(the "Orthodontic Practice") with offices located at 6 South
Broadway, Watertown, South Dakota 57201 (the "Orthodontic
Offices") and furnishes orthodontic care to the general public.
As the owner and operator of the Orthodontic Practice, Dr.
Longworth is the owner of a leasehold interest in a lease of the
Orthodontic Offices, the owner of certain personal property
located at the Orthodontic Offices, a party to certain contracts
relating to the Orthodontic Practice and the beneficiary of other
rights related to the Orthodontic Practice.
C. OMEGA has conducted a review of the Orthodontic
Practice, and has reviewed the Orthodontic Practice's financial
statement (the "Financial Statement"), a copy of which is
attached hereto as Exhibit A . Based on its review of the
Orthodontic Practice and the Financial Statement, OMEGA has
issued the report (the "Report"), a copy of which has been
furnished to Dr. Longworth. Dr. Longworth has reviewed the
Report and OMEGA's literature, and agrees with the Report and the
concepts of OMEGA's Exceptional Practice.
D. Subject to the terms and conditions of this Agreement,
OMEGA and Dr. Longworth have determined that it is in the best
interests of each for OMEGA to purchase from Dr. Longworth
certain of the assets comprising the Orthodontic Practice as
provided in Section 1.1 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. ASSET PURCHASE
1.1 Purchase; Consideration and Payment.
(a) At the Closing (as hereinafter defined) and subject to
the terms and conditions hereinafter set forth, Dr. Longworth
agrees to sell, transfer, convey, assign and deliver to OMEGA,
and OMEGA agrees to purchase and acquire from Dr. Longworth and
take delivery of, for the consideration hereinafter provided, all
of Dr. Longworth's right, title and interest in and to all of
the assets of the Orthodontic Practice, wheresoever situated and
whether or not specifically referred to herein or in any
instrument of conveyance delivered pursuant hereto (such assets
and rights of Dr. Longworth are collectively referred to as the
"Assets"), excepting therefrom the assets listed on Schedule I
to the Bill of Sale and Assignment (the "Bill of Sale") attached
hereto as Exhibit D (the "Excluded Assets"), and including
without limitation the following Assets:
(1) a lease of the Orthodontic Offices, including all
rights and remedies (the "Lease");
(2) all books, records, machinery and equipment used or
owned by the Orthodontic Practice and all other tangible and
intangible personal property at or related to the Orthodontic
Offices, whether or not located at the Orthodontic Offices, or to
the Orthodontic Practice conducted therein, whether or not
located at the Orthodontic Offices;
(3) all Contracts (as defined below in Section 2.1);
(4) all prepaid claims, prepaid taxes and other prepaid
expense items and deferred charges, credits, advance payments,
security and other deposits made by Dr. Longworth to any other
person relating to Orthodontic Practice;
(5) any rights of Dr. Longworth pertaining to any
counterclaims, set-offs or defenses he may have with respect to
any of the liabilities assumed by OMEGA; and
(6) any other rights related in any way whatsoever to the
Orthodontic Practice or the Orthodontic Offices;
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 Closing), without any further
action on the part of any holder thereof, for an aggregate
consideration (the "Consideration") of:
(i) One Hundred Seventy Eight Thousand, Seven Hundred
Dollars ($178,700) in cash (the "Cash Component");
(ii) One Hundred Seventy Eight Thousand, Seven Hundred
Dollars ($178,700) to be represented by a promissory note
(the "Purchase Note") payable to Dr. Longworth (the "Note
Component") in the form attached hereto as Exhibit B; and
(iii) One Hundred Seventy Eight Thousand, Seven Hundred
Dollars ($178,700) to be represented by issuance to Dr.
Longworth of 47,653 shares of OMEGA common stock ("OMEGA
Stock") based on a value per share equal to $3.75 (the
"Stock Component"), which shall thereupon be issued to Dr.
Longworth, fully paid and nonassessable.
1.2 Adjustment; Allocation.
(a) The Consideration is based on the value of the Assets
as determined by OMEGA from the information set forth 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 Practice which
have accrued prior to the Closing 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 Practice. As used herein, Average shall mean an
average of the Accounts Payable of the Orthodontic Practice using
the last twelve months prior to the end of the month immediately
preceding the Closing.
(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.
(d) The parties hereby agree to allocate the Consideration
among the Assets in accordance with Section 1060 of the Internal
Revenue Code (the "Code") on the basis of the fair market value
of the Assets as of the Closing, which allocation shall be
reduced to writing and acknowledged by the parties hereto within
thirty (30) days following the Closing. The parties agree to
file timely any information that may be required to be filed
pursuant to regulations promulgated under Section 1060(b) of the
Code. The parties further agree that they shall report the
federal, state, municipal, foreign and local and other tax
consequences of the purchase and sale hereunder in a manner
consistent with the allocation determined pursuant to this
section, and that they shall not take any position inconsistent
therewith in connection with any tax return, refund claim,
litigation or otherwise.
1.3 Time and Place of Closing. The closing of the
transactions contemplated hereby (herein called the "Closing")
shall be held at the offices of Robinson & Cole, One Boston
Place, Boston, Massachusetts 02108 at 9:00 a.m. Eastern Standard
Time on December 29, 1997 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 January 31, 1998.
1.4 Delivery of Records, Contracts; Transfer of Accounts.
At the Closing, Dr. Longworth shall deliver or cause to be
delivered to OMEGA:
(a) all of the Assets, including without limitation, books,
records, leases, contracts, employment agreements, non-compete
agreements, commitments and rights relating to the Orthodontic
Practice, with such rights of transfer so as to allow OMEGA 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 Dr. Longworth
(and any successor) as a co-insured or otherwise assigning to
OMEGA and its successor the full benefits thereof.
(c) any documentation necessary for the transfer of any of
the Assets, including the Bill of Sale, together with any
warranty or other documentation. Dr. Longworth shall cooperate
with OMEGA in the transfer of any utility accounts for the
Orthodontic Offices.
ARTICLE II. ASSUMED LIABILITIES
2.1 Contracts For purposes of this Article II the term
"Contracts" shall mean only those leases, licenses, permits,
contracts, subleases, registrations, authorizations, commitments,
purchase orders, contracts to purchase materials, contracts to
perform or receive services (including work in process) and
supplies, and all other agreements (whether written or oral)
that relate to the Orthodontic Practice and are set forth on
Exhibit Y attached hereto.
2.2 Transfer. At the Closing, Dr. Longworth shall assign
and transfer to OMEGA all of Dr. Longworth's right, title and
interest in and to the Contracts and OMEGA shall assume and agree
to perform all obligations and liabilities on the part of Dr.
Longworth under the Contracts accruing on and after the Closing;
provided that to the extent that the assignment of any Contract
is not permitted without the consent of the other party or
parties to such Contract, this Agreement shall not constitute an
agreement to assign such Contract if such consent is not given;
and provided further that Dr. Longworth and OMEGA, as
appropriate, shall use all reasonable efforts to obtain such
consents, it being understood that such reasonable efforts shall
not include any requirement to offer or grant financial
accommodations to any third party.
2.3 Assumption of Liabilities by OMEGA. At the Closing,
Dr. Longworth shall assign to OMEGA, and OMEGA shall assume and
pay, perform and discharge, and indemnify and hold Dr. Longworth
harmless from and against, the following obligations and
liabilities of Dr. Longworth, and none other (collectively, the
"Assumed Liabilities"): all obligations and liabilities on the
part of Dr. Longworth under the Contracts arising on and after
the Closing.
2.4 No Enlargement. The assumption by OMEGA of the
Assumed Liabilities shall not enlarge any rights or remedies of
any third party under any Contract with Dr. Longworth. OMEGA
agrees to indemnify, defend and hold Dr. Longworth and his
employees, harmless from and against any and all liability, loss,
cost, damage and/or expense (including, without limitation,
reasonable attorneys' fees and costs) pertaining to the Assumed
Liabilities.
2.5 No Other Liabilities Assumed. OMEGA and Dr. Longworth
intend that OMEGA shall not assume or be obligated to pay,
perform or discharge any of Dr. Longworth's obligations other
than the Assumed Liabilities specified in Section 2.3. Except
for the Assumed Liabilities specified in Section 2.3, OMEGA and
Dr. Longworth expressly agree OMEGA is acquiring the Assets free
and clear of all liens, claims and encumbrances.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Longworth 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. LONGWORTH
Dr. Longworth hereby covenants and agrees with OMEGA as
follows:
4.1 Conduct of Business. Between the date of this
Agreement and the Closing, he will do the following unless OMEGA
shall otherwise consent in writing:
(a) conduct his 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 Assets;
(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 offering patients discounts of five
percent (5%) or more for prepayments of fees for service;
(e) refrain from selling, assigning or otherwise
transferring accounts receivable to any bank, finance company or
other third party;
(f) maintain accounts payable at levels consistent
with past practices;
(g) use his best efforts to keep available his present
employees and to preserve the goodwill of all patients,
suppliers, and others having business relations with him;
(h) not commit or fail to commit any act which would
cause Dr. Longworth to suffer the revocation, suspension or
limitation of Dr. Longworth's license; and
(i) permit OMEGA and its authorized representatives to
have full access to all his properties, assets, records, tax
returns, records, contracts and documents and furnish to OMEGA or
its authorized representatives such financial and other
information with respect to his business or properties as OMEGA
may from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, he
will have obtained all assignments, authorizations, consents and
permits of others required to permit the consummation by Dr.
Longworth 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, he shall give detailed written notice
thereof to and shall use his best efforts to prevent or promptly
remedy the same.
4.4 Consummation of Agreement. He shall use his 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 hereby covenants and agrees with Dr. Longworth as
follows:
5.1 Authorization from Others. Prior to the Closing, it
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. It 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 VI will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the
representations and warranties of Dr. Longworth contained in
Schedule 1 shall be true and correct as though made on and as of
the Closing, and Dr. Longworth shall have performed all of his
obligations hereunder which by the terms hereof are to be
performed on or before the Closing.
6.2 New PC. Dr. Longworth shall have formed a new
professional entity (the "New PC") under the laws of the State in
order to commence the practice of orthodontics through the New
PC. Dr. Longworth 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. Longworth shall have executed
and delivered, or shall have caused the New PC to execute and
deliver, to 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 [INTENTIONALLY OMITTED]
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. Dr. Longworth shall, at OMEGA's expense,
notify all patients and obligors of accounts receivable, and
third party payors and others designated by OMEGA of the Asset
purchase 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 Practice 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 Practice, nor any material loss or
damage to the Assets, whether or not insured, which materially
affects the ability of the Orthodontic Practice to conduct its
business. Dr. Longworth 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. Longworth and the Orthodontic
Practice 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
professional status of Dr. Longworth or the business of the
Orthodontic Practice or in the condition of the Assets or the
prospects (financial or otherwise) of the Orthodontic Practice
from the information provided prior to the date hereof. As used
herein, Due Diligence shall mean, without limitation, the results
of any investigations or analyses conducted by or on behalf of
OMEGA (financial or otherwise) related to, or otherwise deemed
material by OMEGA, regarding Dr. Longworth and the Orthodontic
Practice, 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 DR. LONGWORTH
The obligations of Dr. Longworth 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 VII 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. Longworth 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 [INTENTIONALLY OMITTED]
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.
Longworth 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. Longworth 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. Longworth,
his accountants and attorneys, reasonable access to such books
and records for the purpose of preparing such tax returns of Dr.
Longworth as may be required after the Closing and for other
proper purposes approved by OMEGA.
8.3 License. Dr. Longworth shall maintain all licenses
necessary to practice orthodontics in the State. Dr. Longworth
shall not commit or fail to commit any act which would cause Dr.
Longworth or the New PC to suffer the revocation, suspension or
limitation of Dr. Longworth's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Longworth. Subject to the
limitations set forth in Section 9.3, Dr. Longworth 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 Dr. Longworth 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 its 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. Longworth 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. Longworth 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. Longworth 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.
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 by Dr. Longworth, or Dr.
Longworth's transferees in liquidation, within 30 days after
notice thereof is given by OMEGA. In the event Dr. Longworth
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 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 OMEGA and 50% by the New PC and Dr. Longworth.
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.
Longworth if the conditions stated in Article VII have not been
satisfied at or prior to the Closing.
(b) [INTENTIONALLY OMITTED]
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. Longworth, to:
David Longworth, D.D.S.
6 South Broadway
Watertown, South Dakota 57201
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 either of the parties without the prior
written consent of the other party.
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 the Closing represents the fair
market value of the Assets and is not in any way related to or
dependent upon referrals by and between OMEGA and Dr. Longworth.
10.10 Further Assurances. Following the execution of
this Agreement, Dr. Longworth 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.
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 Longworth D.D.S.
Printed Name: David Longworth, D.D.S.
OMEGA ORTHODONTICS, INC.
By:/s/ Robert J. Schulhof
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
Exhibit A
Financial Statement
[DR. LONGWORTH PROVIDE]
Exhibit B
NON-NEGOTIABLE PROMISSORY NOTE
$178,700.00 Acton, California
_________ ___, 1997
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware
corporation ("Omega"), promises to pay to Dr. David Longworth
("Dr. Longworth") at 6 South Broadway, Watertown, South Dakota
57201 or other location specified by Dr. Longworth in writing,
One Hundred Seventy Eight Thousand Seven Hundred Dollars
($178,700.00) 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 with
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.
Longworth, 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 without penalty or premium, upon
written notice to Dr. Longworth.
5. Expenses. Omega agrees to pay all expenses, including
reasonable attorney's fees, which Dr. Longworth may incur in
effecting collection of this Note upon default or at maturity.
6. Delays. Dr. Longworth 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. Longworth. 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. Longworth 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.
Longworth 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.
INTENTIONALLY LEFT BLANK
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
Exhibit C
Notice
__________________, 1997
[Name and address
of Patient/Account Debtor/Third Party Payors/Others]
Re: Dr. David Longworth, D.D.S.
Ladies and Gentlemen:
I am pleased to inform you that my practice has become
affiliated with Omega Orthodontics, Inc., a nationwide
orthodontic practice management company. My affiliation with
Omega affords me the opportunity to provide my patients with
professional billing, collection and other management systems,
thereby permitting me to continue to focus on providing quality
orthodontic care.
Commencing immediately and until further notice from Omega
and myself, I direct you to pay all amounts owing and payable
to David Longworth, D.D.S. and [New PC] in the manner and to the
place specified in any notice Omega sends to you. In addition,
I consent to the provisions of any such notice from Omega to you.
Thank you for your cooperation; should you have any
questions, please contact the undersigned.
Very truly yours,
___________________________
David Longworth, D.D.S.
[New PC]
By _________________________
David Longworth, D.D.S.,
President
Exhibit D
BILL OF SALE AND ASSIGNMENT
BILL OF SALE AND ASSIGNMENT
The undersigned, David Longworth, D.D.S., ("Dr. Longworth")
for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, hereby sells, assigns,
transfers, delivers and conveys to Omega Orthodontics, Inc., a
Delaware corporation, having a usual place of business in Acton,
California ("OMEGA"), all of his right, title and interest in
and to all of the assets of the orthodontic practice operated by
Dr. Longworth (the "Orthodontic Practice") at 6 South Broadway,
Watertown, South Dakota 57201, wheresoever situated and whether
or not specifically referred to herein (such assets and rights
of Dr. Longworth are collectively referred to as the "Assets"),
excepting therefrom the assets listed on Schedule I (the
"Excluded Assets"), attached hereto and made a part hereof, and
including without limitation, the following Assets:
(a) a lease at 6 South Broadway, Watertown, South Dakota
57201(the "Orthodontic Offices"), including all rights and
remedies (the "Lease");
(b) all books, records, machinery and equipment
("Equipment"), used or owned by the Orthodontic Practice, and all
other tangible and intangible personal property at or related to
the Orthodontic Offices, whether or not located at the
Orthodontic Offices, or to the Orthodontic Practice conducted
therein, whether or not located at the Orthodontic Offices
(c) all leases, licenses, permits, contracts, subleases,
registrations, authorizations, commitments, purchase orders,
contracts to purchase materials, contracts to perform or receive
services (including work in process) and supplies, and all other
agreements (whether written or oral) relating to the Orthodontic
Practice listed on the attached Exhibit Y (the "Contracts");
(d) all prepaid claims, prepaid taxes and other prepaid
expense items and deferred charges, credits, advance payments,
security and other deposits made by Dr. Longworth to any other
person relating to the Orthodontic Practice;
(e) any rights of Dr. Longworth pertaining to any
counterclaims, set-offs or defenses he may have with respect to
any of the liabilities assumed by OMEGA; and
(f) any other rights related in any way whatsoever to the
Orthodontic Practice or the Orthodontic Offices.
Dr. Longworth represents that he has good and marketable
title in fee simple to all of the Assets, free of liens and
encumbrances. All of the Assets are in good repair, have been
well maintained, substantially conform with all applicable
ordinances, regulations and zoning or other laws. The Equipment
is in good working order.
OMEGA assumes and agrees to pay, perform and discharge, and
indemnify and hold Dr. Longworth harmless from and against, the
following obligations and liabilities of Dr. Longworth, and none
other: (a) obligations and liabilities under the Lease and the
Contracts arising on and after the Closing and any and all
claims, liabilities, losses, costs, damages or expenses
(including reasonable attorneys' fees and expenses) resulting
from or arising out of ownership of the Assets or the operation
and maintenance of the Orthodontic Practice, or caused by or
occurring upon the Assets, on and after the Closing (the "Assumed
Liabilities").
The assumption by OMEGA of the Assumed Liabilities shall not
enlarge any rights or remedies of any third party under any
Contract with Dr. Longworth. OMEGA agrees to indemnify, defend
and hold Dr. Longworth and his employees, harmless from and
against any and all liability, loss, cost, damage and/or expense
(including, without limitation, reasonable attorneys' fees and
costs) pertaining to the Assumed Liabilities.
OMEGA and Dr. Longworth intend that OMEGA shall not assume
or be obligated to pay, perform or discharge any of Dr.
Longworth's obligations other than the Assumed Liabilities.
Except for the Assumed Liabilities, OMEGA and Dr. Longworth
expressly agree that OMEGA is acquiring the Assets free and clear
of all liens, claims and encumbrances.
This Bill of Sale and Assignment is executed and delivered
in connection with the Affiliation Agreement and Asset Purchase
Agreement entered into by and between Dr. Longworth and OMEGA
dated January 1, 1998.
WITNESS the execution under seal this 1st day of January,
1999.
___________________________
David Longworth
Schedule I
Excluded Assets
None
Exhibit Y
List of Contracts
[DR. LONGWORTH PROVIDE]
Exhibit E
Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
Executed Copies of even date herewith have been delivered to the
parties.
(See file folders B and C of Closing File)
Schedule 1
Representations and Warranties of
Dr. Longworth to OMEGA
Dr. Longworth hereby represents and warrants to OMEGA as
follows:
1. The Orthodontic Practice. The Assets of the Orthodontic
Practice are owned 100% by Dr. Longworth. Dr. Longworth has the
full power to conduct business as currently conducted by the
Orthodontic Practice and to own and lease the property he
purports to own.
2. Authorization of Transaction. All necessary action has
been taken by Dr. Longworth to authorize the execution of this
Agreement by Dr. Longworth, and the delivery and performance of
this Agreement and the transactions contemplated hereby, and this
Agreement is the valid and binding obligation of Dr. Longworth,
enforceable against Dr. Longworth 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) a default in the performance of any obligation, agreement or
condition of any debt instrument from Dr. Longworth 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; (b) a default of or breach of (with or
without the passage of time or the giving of notice) any other
contract to which Dr. Longworth is a party or by which he or the
Assets are bound; or (c) any violation of any law, regulation,
administrative order or judicial order applicable to Dr.
Longworth, the Orthodontic Practice or the 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) 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. Longworth is a
party, or give any person the right to accelerate any
indebtedness or terminate any right; (ii) 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 Dr. Longworth is a party or by which he or the Assets are
bound; or (iii) result in a violation of any law, regulation,
administrative order or judicial order applicable to Dr.
Longworth, the Orthodontic Practice or the 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 Dr.
Longworth do not require the consent, waiver, approval,
authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) Dr. Longworth has all necessary licenses to practice
orthodontics in the State.
(b) Dr. Longworth is not subject to any investigation,
whether threatened, current or pending, under which Dr. Longworth
may be required to forfeit or suffer the revocation, suspension
or limitation of Dr. Longworth's license to practice orthodontics
and Dr. Longworth is not 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 Practice.
To the best knowledge of Dr. Longworth, the Financial Statement
is complete and correct and fairly presents in all material
respects the financial position of the Orthodontic Practice 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. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, Dr.
Longworth has good and marketable title in fee simple to all of
the Assets, including without limitation, all real and personal
property, machinery and equipment used or owned by the
Orthodontic Practice (the "Equipment"), free of liens and
encumbrances (the "Property"). All the Property owned or leased
by Dr. Longworth 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 practice or person owns any of the assets
necessary for the operation of the Orthodontic Practice. The
Orthodontic Practice does not operate any of its practice through
any other entities or persons.
9. Payment of Taxes. Dr. Longworth 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 purchase of the Assets pursuant to this
Agreement shall be paid or provided for by Dr. Longworth after
the Closing out of the Consideration to be received upon
consummation of this Agreement.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, Dr.
Longworth 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) relating to the Orthodontic Practice, 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 Practice 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 Dr. Longworth or
the Orthodontic Practice, 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 Dr. Longworth or the Orthodontic Practice;
(ii) any mortgage, encumbrance or lien placed on any
of 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 Dr.
Longworth relating to the Orthodontic Practice 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 Dr. Longworth,
threatened against the Orthodontic Practice or Dr. Longworth, 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 Dr. Longworth, threatened against or involving
Dr. Longworth or the Orthodontic Practice, 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 Practice or Dr. Longworth 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. Longworth or the
Orthodontic Practice.
12. Insurance. Dr. Longworth has possessed adequate
occurrence professional liability coverage for the five (5) years
prior to the date of this Agreement protecting the Orthodontic
Practice and Dr. Longworth from any professional malpractice
liability that might arise because of the Orthodontic Practice's
or Dr. Longworth'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. Longworth and the New PC.
The Orthodontic Practice possesses adequate insurance coverage
for its Property.
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Longworth and
Orthodontic Practice to OMEGA
None.
Schedule 2
Representations and Warranties of
OMEGA to Dr. Longworth
OMEGA hereby represents and warrants to Dr. Longworth 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.
EXHIBIT 2.11
29
AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT
THIS AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT is
entered into as of the 1st day of January 1998, by and between
Omega Orthodontics, Inc., a Delaware corporation ("OMEGA" or
"Surviving Entity"), and Rodney A. Gray, D.D.S. ("Dr. Gray"), who
is duly licensed to practice endodontics in the state of Nevada
(the "State").
RECITALS
A. OMEGA provides professional management and marketing
services to orthodontic and other dental specialty 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
such practices, and which services are provided directly or
indirectly through management service organizations.
B. Dr. Gray owns and operates an endodontic practice (the
"Endodontic Practice") with offices located at 4101 Caughlin
Square, Suite 2, Reno, Nevada 89509 (the "Endodontic Offices")
and furnishes endodontic care to the general public. As the
owner and operator of the Endodontic Practice, Dr. Gray is the
owner of a leasehold interest in a lease of the Endodontic
Offices, the owner of certain personal property located at the
Endodontic Offices, a party to certain contracts relating to the
Endodontic Practice and the beneficiary of other rights related
to the Endodontic Practice.
C. OMEGA has conducted a review of the Endodontic
Practice, and has reviewed the Endodontic Practice's financial
statement (the "Financial Statement"), a copy of which is
attached hereto as Exhibit A . Based on its review of the
Endodontic Practice and the Financial Statement, OMEGA has issued
the report (the "Report"), a copy of which has been furnished to
Dr. Gray. Dr. Gray has reviewed the Report and OMEGA's
literature, and agrees with the Report and the concepts of
OMEGA's Exceptional Practice.
D. Subject to the terms and conditions of this Agreement,
OMEGA and Dr. Gray have determined that it is in the best
interests of each for OMEGA to purchase from Dr. Gray certain of
the assets comprising the Endodontic Practice as provided in
Section 1.1 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. ASSET PURCHASE
1.1 Purchase; Consideration and Payment.
(a) At the Closing (as hereinafter defined) and subject to
the terms and conditions hereinafter set forth, Dr. Gray agrees
to sell, transfer, convey, assign and deliver to OMEGA, and OMEGA
agrees to purchase and acquire from Dr. Gray and take delivery
of, for the consideration hereinafter provided, all of Dr.
Gray's right, title and interest in and to all of the assets of
the Endodontic Practice, wheresoever situated and whether or not
specifically referred to herein or in any instrument of
conveyance delivered pursuant hereto (such assets and rights of
Dr. Gray are collectively referred to as the "Assets"), excepting
therefrom the assets listed on Schedule I to the Bill of Sale
and Assignment (the "Bill of Sale") attached hereto as Exhibit D
(the "Excluded Assets"), and including without limitation the
following Assets:
(1) a lease of the Endodontic Offices, including all rights
and remedies (the "Lease");
(2) all books, records, machinery and equipment used or
owned by the Endodontic Practice and all other tangible and
intangible personal property at or related to the Endodontic
Offices, whether or not located at the Endodontic Offices, or to
the Endodontic Practice conducted therein, whether or not located
at the Endodontic Offices;
(3) all Contracts (as defined below in Section 2.1);
(4) all prepaid claims, prepaid taxes and other prepaid
expense items and deferred charges, credits, advance payments,
security and other deposits made by Dr. Gray to any other person
relating to Endodontic Practice;
(5) any rights of Dr. Gray pertaining to any counterclaims,
set-offs or defenses he may have with respect to any of the
liabilities assumed by OMEGA; and
(6) any other rights related in any way whatsoever to the
Endodontic Practice or the Endodontic Offices;
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 Closing), without any further
action on the part of any holder thereof, for an aggregate
consideration (the "Consideration") of:
(i) Five Hundred Fifty Thousand Dollars ($550,000) in
cash (the "Cash Component");
(ii) Three Hundred Seventy Four Thousand, Four Hundred
Dollars ($374,400) to be represented by a promissory note
(the "Purchase Note") payable to Dr. Gray (the "Note
Component") in the form attached hereto as Exhibit B; and
(iii) Six Hundred Twenty Thousand Dollars ($620,000) to
be represented by issuance to Dr. Gray of shares of
unregistered OMEGA common stock ("OMEGA Stock") based on a
value per share equal to the lesser of (a) $3.75 or (b) the
average of the closing prices for OMEGA Stock on The Nasdaq
SmallCap Market for each business day (Monday through
Friday, not including any legal holidays) of the calendar
week ending the Friday immediately preceding the Closing
(the "Stock Component"), which shall thereupon be issued to
Dr. Gray, fully paid and nonassessable.
1.2 Adjustment; Allocation.
(a) The Consideration is based on the value of the Assets
as mutually determined by the parties from the information set
forth 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 Endodontic Practice which
have accrued prior to the Closing 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
Endodontic Practice. As used herein, Average shall mean an
average of the Accounts Payable of the Endodontic Practice using
the last twelve months prior to the end of the month immediately
preceding the Closing.
(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.
(d) The parties hereby agree to allocate the Consideration
among the Assets in accordance with Section 1060 of the Internal
Revenue Code (the "Code") on the basis of the fair market value
of the Assets as of the Closing, which allocation shall be
reduced to writing and acknowledged by the parties hereto within
thirty (30) days following the Closing. The parties agree to
file timely any information that may be required to be filed
pursuant to regulations promulgated under Section 1060(b) of the
Code. The parties further agree that they shall report the
federal, state, municipal, foreign and local and other tax
consequences of the purchase and sale hereunder in a manner
consistent with the allocation determined pursuant to this
section, and that they shall not take any position inconsistent
therewith in connection with any tax return, refund claim,
litigation or otherwise.
1.3 Time and Place of Closing. The closing of the
transactions contemplated hereby (herein called the "Closing")
shall be held at the offices of Robinson & Cole LLP, One Boston
Place, Boston, Massachusetts 02108 at 9:00 a.m. Eastern Standard
Time on January 15, 1998 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 January 31, 1998.
1.4 Delivery of Records, Contracts; Transfer of Accounts.
At the Closing, Dr. Gray shall deliver or cause to be delivered
to OMEGA:
(a) all of the Assets, including without limitation, books,
records, leases, contracts, employment agreements, non-compete
agreements, commitments and rights relating to the Endodontic
Practice, with such rights of transfer so as to allow OMEGA 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 Dr. Gray (and
any successor) as a co-insured or otherwise assigning to OMEGA
and its successor the full benefits thereof.
(c) any documentation necessary for the transfer of any of
the Assets, including the Bill of Sale, together with any
warranty or other documentation. Dr. Gray shall cooperate with
OMEGA in the transfer of any utility accounts for the Endodontic
Offices.
ARTICLE II. ASSUMED LIABILITIES
2.1 Contracts For purposes of this Article II the term
"Contracts" shall mean only those leases, licenses, permits,
contracts, subleases, registrations, authorizations, commitments,
purchase orders, contracts to purchase materials, contracts to
perform or receive services (including work in process) and
supplies, and all other agreements (whether written or oral)
that relate to the Endodontic Practice and are set forth on
Exhibit Y attached hereto.
2.2 Transfer. At the Closing, Dr. Gray shall assign and
transfer to OMEGA all of Dr. Gray's right, title and interest in
and to the Contracts and OMEGA shall assume and agree to perform
all obligations and liabilities on the part of Dr. Gray under the
Contracts accruing on and after the Closing; provided that to the
extent that the assignment of any Contract is not permitted
without the consent of the other party or parties to such
Contract, this Agreement shall not constitute an agreement to
assign such Contract if such consent is not given; and provided
further that Dr. Gray and OMEGA, as appropriate, shall use all
reasonable efforts to obtain such consents, it being understood
that such reasonable efforts shall not include any requirement to
offer or grant financial accommodations to any third party.
2.3 Assumption of Liabilities by OMEGA. At the Closing,
Dr. Gray shall assign to OMEGA, and OMEGA shall assume and pay,
perform and discharge, and indemnify and hold Dr. Gray harmless
from and against, the following obligations and liabilities of
Dr. Gray, and none other (collectively, the "Assumed
Liabilities"): all obligations and liabilities on the part of Dr.
Gray under the Contracts arising on and after the Closing.
2.4 No Enlargement. The assumption by OMEGA of the
Assumed Liabilities shall not enlarge any rights or remedies of
any third party under any Contract with Dr. Gray. OMEGA agrees
to indemnify, defend and hold Dr. Gray and his employees,
harmless from and against any and all liability, loss, cost,
damage and/or expense (including, without limitation, reasonable
attorneys' fees and costs) pertaining to the Assumed Liabilities.
2.5 No Other Liabilities Assumed. OMEGA and Dr. Gray
intend that OMEGA shall not assume or be obligated to pay,
perform or discharge any of Dr. Gray's obligations other than the
Assumed Liabilities specified in Section 2.3. Except for the
Assumed Liabilities specified in Section 2.3, OMEGA and Dr. Gray
expressly agree OMEGA is acquiring the Assets free and clear of
all liens, claims and encumbrances.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Gray 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. GRAY
Dr. Gray hereby covenants and agrees with OMEGA as follows:
4.1 Conduct of Business. Between the date of this
Agreement and the Closing, he will do the following unless OMEGA
shall otherwise consent in writing:
(a) conduct his 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 Assets;
(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 offering patients discounts of five
percent (5%) or more for prepayments of fees for service;
(e) refrain from selling, assigning or otherwise
transferring accounts receivable to any bank, finance company or
other third party;
(f) maintain accounts payable at levels consistent
with past practices;
(g) use his best efforts to keep available his present
employees and to preserve the goodwill of all patients,
suppliers, and others having business relations with him;
(h) not commit or fail to commit any act which would
cause Dr. Gray to suffer the revocation, suspension or limitation
of Dr. Gray's license; and
(i) permit OMEGA and its authorized representatives to
have full access to all his properties, assets, records, tax
returns, records, contracts and documents and furnish to OMEGA or
its authorized representatives such financial and other
information with respect to his business or properties as OMEGA
may from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, he
will have obtained all assignments, authorizations, consents and
permits of others required to permit the consummation by Dr. Gray
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, he shall give detailed written notice
thereof to and shall use his best efforts to prevent or promptly
remedy the same.
4.4 Consummation of Agreement. He shall use his 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 hereby covenants and agrees with Dr. Gray as follows:
5.1 Authorization from Others. Prior to the Closing, it
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. It 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 VI will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the
representations and warranties of Dr. Gray contained in Schedule
1 shall be true and correct as though made on and as of the
Closing, and Dr. Gray shall have performed all of his obligations
hereunder which by the terms hereof are to be performed on or
before the Closing.
6.2 New PC. Dr. Gray shall have formed a new professional
entity (the "New PC") under the laws of the State in order to
commence the practice of endodontics through the New PC. Dr.
Gray 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. Gray shall have executed and
delivered, or shall have caused the New PC to execute and
deliver, to 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 [INTENTIONALLY OMITTED]
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. Dr. Gray shall, at OMEGA's request and
expense, notify all patients and obligors of accounts receivable,
and third party payors and others designated by OMEGA of the
asset purchase and the other transactions contemplated hereunder
pursuant to notice in a form mutually acceptable to the parties
and which is comparable in scope to the form attached hereto as
Exhibit C.
6.7 Financial Condition. The financial condition of the
Endodontic Practice 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 Endodontic Practice, nor any material loss or
damage to the Assets, whether or not insured, which materially
affects the ability of the Endodontic Practice to conduct its
business. Dr. Gray 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. Gray and the Endodontic Practice 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 professional status of
Dr. Gray or the business of the Endodontic Practice or in the
condition of the Assets or the prospects (financial or otherwise)
of the Endodontic Practice from the information provided prior to
the date hereof. As used herein, Due Diligence shall mean,
without limitation, the results of any investigations or analyses
conducted by or on behalf of OMEGA (financial or otherwise)
related to, or otherwise deemed material by OMEGA, regarding Dr.
Gray and the Endodontic Practice, including location of the
Endodontic 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 DR. GRAY
The obligations of Dr. Gray 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 VII 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. Gray 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 [INTENTIONALLY OMITTED]
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.
Gray 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. Gray 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. Gray, his
accountants and attorneys, reasonable access to such books and
records for the purpose of preparing such tax returns of Dr. Gray
as may be required after the Closing and for other proper
purposes approved by OMEGA.
8.3 License. Dr. Gray shall maintain all licenses
necessary to practice endodontics in the State. Dr. Gray shall
not commit or fail to commit any act which would cause Dr. Gray
or the New PC to suffer the revocation, suspension or limitation
of Dr. Gray's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Gray. Subject to the
limitations set forth in Section 9.3, Dr. Gray 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 Dr. Gray 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.
9.2 Indemnification By OMEGA. Subject to the limitations
set forth in Section 9.3, OMEGA agrees to defend, indemnify and
hold Dr. Gray 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. Gray 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.
Indemnification claims by either party shall be paid or otherwise
satisfied within 30 days after notice thereof is given by the
party seeking indemnification. In the event the indemnifying
party indicates in a writing delivered to the other party that he
or it 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 OMEGA and 50% by
the New PC and Dr. Gray.
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. Gray if
the conditions stated in Article VII have not been satisfied at
or prior to the Closing.
(b) [INTENTIONALLY OMITTED]
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. Gray, to:
Rodney A. Gray, D.D.S.
4101 Caughlin Square - Suite 2
Reno, Nevada 89509
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 either of the parties without the prior
written consent of the other party which will not be unreasonably
withheld.
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 the Closing represents the fair
market value of the Assets and is not in any way related to or
dependent upon referrals by and between OMEGA and Dr. Gray.
10.10 Further Assurances. Following the execution of
this Agreement, Dr. Gray 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.
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/ Rodney A. Gray D.D.S.
Printed Name: Rodney A. Gray, D.D.S.
OMEGA ORTHODONTICS, INC.
By:/s/ Robert J. Schulhof
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
Exhibit A
Financial Statement
[DR. GRAY PROVIDE]
Exhibit B
NON-NEGOTIABLE PROMISSORY NOTE
$374,400.00 Acton, California
_________ ___, 1998
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware
corporation ("Omega"), promises to pay to Dr. Rodney A. Gray
("Dr. Gray") at 4101 Caughlin Square - Suite 2, Reno, Nevada
89509 or other location specified by Dr. Gray in writing, Three
Hundred Seventy Four Thousand Four Hundred Dollars ($374,400.00)
together with interest on any and all principal amounts, such
interest to be at the rate of 8.0% per annum and payable monthly
on the first day of each month, beginning with 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 first 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 48th 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 48 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.
Gray, 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 without penalty or premium, upon
written notice to Dr. Gray.
5. Expenses. Omega agrees to pay all expenses, including
reasonable attorney's fees, which Dr. Gray may incur in effecting
collection of this Note upon default or at maturity.
6. Delays. Dr. Gray 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. Gray. 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. Gray 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.
Gray 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.
INTENTIONALLY LEFT BLANK
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
Exhibit C
Notice
__________________, 1998
[Name and address
of Patient/Account Debtor/Third Party Payors/Others]
Re: Dr. Rodney A. Gray, D.D.S.
Ladies and Gentlemen:
I am pleased to inform you that my practice has become
affiliated with Omega Orthodontics, Inc., a nationwide dental
specialty practice management company. My affiliation with
Omega affords me the opportunity to provide my patients with
professional billing, collection and other management systems,
thereby permitting me to continue to focus on providing quality
endodontic care.
Commencing immediately and until further notice from Omega
and myself, I direct you to pay all amounts owing and payable
to Rodney A. Gray, D.D.S. and [New PC] in the manner and to the
place specified in any notice Omega sends to you. In addition,
I consent to the provisions of any such notice from Omega to you.
Thank you for your cooperation; should you have any
questions, please contact the undersigned.
Very truly yours,
___________________________
Rodney A. Gray, D.D.S.
[New PC]
By _________________________
Rodney A. Gray, D.D.S.,
President
Exhibit D
BILL OF SALE AND ASSIGNMENT
BILL OF SALE AND ASSIGNMENT
The undersigned, Rodney A. Gray, D.D.S., ("Dr. Gray") for
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, hereby sells, assigns, transfers,
delivers and conveys to Omega Orthodontics, Inc., a Delaware
corporation, having a usual place of business in Acton,
California ("OMEGA"), all of his right, title and interest in
and to all of the assets of the endodontic practice operated by
Dr. Gray (the "Endodontic Practice") at 4101 Caughlin Square,
Suite 2, Reno, Nevada 89509, wheresoever situated and whether or
not specifically referred to herein (such assets and rights of
Dr. Gray are collectively referred to as the "Assets"), excepting
therefrom the assets listed on Schedule I (the "Excluded
Assets"), attached hereto and made a part hereof, and including
without limitation, the following Assets:
(a) a lease at 4101 Caughlin Square, Suite 2, Reno, Nevada
89509 (the "Endodontic Offices"), including all rights and
remedies (the "Lease");
(b) all books, records, machinery and equipment
("Equipment"), used or owned by the Endodontic Practice, and all
other tangible and intangible personal property at or related to
the Endodontic Offices, whether or not located at the Endodontic
Offices, or to the Endodontic Practice conducted therein, whether
or not located at the Endodontic Offices
(c) all leases, licenses, permits, contracts, subleases,
registrations, authorizations, commitments, purchase orders,
contracts to purchase materials, contracts to perform or receive
services (including work in process) and supplies, and all other
agreements (whether written or oral) relating to the Endodontic
Practice listed on the attached Exhibit Y (the "Contracts");
(d) all prepaid claims, prepaid taxes and other prepaid
expense items and deferred charges, credits, advance payments,
security and other deposits made by Dr. Gray to any other person
relating to the Endodontic Practice;
(e) any rights of Dr. Gray pertaining to any counterclaims,
set-offs or defenses he may have with respect to any of the
liabilities assumed by OMEGA; and
(f) any other rights related in any way whatsoever to the
Endodontic Practice or the Endodontic Offices.
Dr. Gray represents that he has good and marketable title in
fee simple to all of the Assets, free of liens and encumbrances.
All of the Assets are in good repair, have been well maintained,
substantially conform with all applicable ordinances, regulations
and zoning or other laws. The Equipment is in good working
order.
OMEGA assumes and agrees to pay, perform and discharge, and
indemnify and hold Dr. Gray harmless from and against, the
following obligations and liabilities of Dr. Gray, and none
other: (a) obligations and liabilities under the Lease and the
Contracts arising on and after the Closing and any and all
claims, liabilities, losses, costs, damages or expenses
(including reasonable attorneys' fees and expenses) resulting
from or arising out of ownership of the Assets or the operation
and maintenance of the Endodontic Practice, or caused by or
occurring upon the Assets, on and after the Closing (the "Assumed
Liabilities").
The assumption by OMEGA of the Assumed Liabilities shall not
enlarge any rights or remedies of any third party under any
Contract with Dr. Gray. OMEGA agrees to indemnify, defend and
hold Dr. Gray and his employees, harmless from and against any
and all liability, loss, cost, damage and/or expense (including,
without limitation, reasonable attorneys' fees and costs)
pertaining to the Assumed Liabilities.
OMEGA and Dr. Gray intend that OMEGA shall not assume or be
obligated to pay, perform or discharge any of Dr. Gray's
obligations other than the Assumed Liabilities. Except for the
Assumed Liabilities, OMEGA and Dr. Gray expressly agree that
OMEGA is acquiring the Assets free and clear of all liens, claims
and encumbrances.
This Bill of Sale and Assignment is executed and delivered
in connection with the Affiliation Agreement and Asset Purchase
Agreement entered into by and between Dr. Gray and OMEGA dated as
of January 1, 1998.
WITNESS the execution under seal as of this 1st day of
January, 1998.
___________________________
Rodney A. Gray
Schedule I
Excluded Assets
[DR. GRAY PROVIDE]
Exhibit Y
List of Contracts
[DR. GRAY PROVIDE]
Exhibit E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
[DRAFTS ATTACHED]
Schedule 1
Representations and Warranties of
Dr. Gray to OMEGA
Dr. Gray hereby represents and warrants to OMEGA as follows:
1. The Endodontic Practice. The Assets of the Endodontic
Practice are owned 100% by Dr. Gray. Dr. Gray has the full
power to conduct business as currently conducted by the
Endodontic Practice and to own and lease the property he purports
to own.
2. Authorization of Transaction. All necessary action has
been taken by Dr. Gray to authorize the execution of this
Agreement by Dr. Gray, and the delivery and performance of this
Agreement and the transactions contemplated hereby, and this
Agreement is the valid and binding obligation of Dr. Gray,
enforceable against Dr. Gray 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) a default in the performance of any obligation, agreement or
condition of any debt instrument from Dr. Gray 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; (b) a default of or breach of (with or
without the passage of time or the giving of notice) any other
contract to which Dr. Gray is a party or by which he or the
Assets are bound; or (c) any violation of any law, regulation,
administrative order or judicial order applicable to Dr. Gray,
the Endodontic Practice or the 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) 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. Gray is a party,
or give any person the right to accelerate any indebtedness or
terminate any right; (ii) 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 Dr. Gray is a
party or by which he or the Assets are bound; or (iii) result in
a violation of any law, regulation, administrative order or
judicial order applicable to Dr. Gray, the Endodontic Practice or
the 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 Dr. Gray do
not require the consent, waiver, approval, authorization,
exemption of or giving of notice to any governmental authority.
5. Investigations and Licenses.
(a) Dr. Gray has all necessary licenses to practice
endodontics in the State.
(b) Dr. Gray is not subject to any investigation, whether
threatened, current or pending, under which Dr. Gray may be
required to forfeit or suffer the revocation, suspension or
limitation of Dr. Gray's license to practice endodontics and Dr.
Gray is not 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 Endodontic Practice.
To the best knowledge of Dr. Gray, the Financial Statement is
complete and correct and fairly presents in all material respects
the financial position of the Endodontic Practice 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. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, Dr.
Gray has good and marketable title in fee simple to all of the
Assets, including without limitation, all personal property,
machinery and equipment used or owned by the Endodontic Practice
(the "Equipment"), free of liens and encumbrances (the
"Property"). All the Property owned or leased by Dr. Gray 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 practice or person owns any of the assets
necessary for the operation of the Endodontic Practice. The
Endodontic Practice does not operate any of its practice through
any other entities or persons.
9. Payment of Taxes. Dr. Gray 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 purchase of the Assets pursuant to this Agreement shall be
paid or provided for by Dr. Gray after the Closing out of the
Consideration to be received upon consummation of this Agreement.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, Dr. Gray 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)
relating to the Endodontic Practice, 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 Endodontic Practice 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 Dr. Gray or the
Endodontic Practice, 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 Dr. Gray or the Endodontic Practice;
(ii) any mortgage, encumbrance or lien placed on any
of 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 Dr. Gray
relating to the Endodontic Practice 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 Dr. Gray,
threatened against the Endodontic Practice or Dr. Gray, 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 Dr. Gray, threatened against or involving Dr. Gray
or the Endodontic Practice, 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 Endodontic Practice
or Dr. Gray 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. Gray or the Endodontic Practice.
12. Insurance. Dr. Gray has possessed [adequate]
occurrence professional liability coverage for the five (5) years
prior to the date of this Agreement protecting the Endodontic
Practice and Dr. Gray from any professional malpractice liability
that might arise because of the Endodontic Practice's or Dr.
Gray'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. Gray and the New PC. The Endodontic
Practice possesses adequate insurance coverage for its Property.
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Gray to
OMEGA
NONE
Schedule 2
Representations and Warranties of
OMEGA to Dr. Gray
OMEGA hereby represents and warrants to Dr. Gray 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.
EXHIBIT 2.12
-12-
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
(Tangible Assets)
THIS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS ("Asset
Purchase Agreement") is made and entered into as of January 7,
1998, by and between Sharon M. Crowder, D.D.S., Inc., a
California professional dental corporation, as seller ("Seller")
and Omega Orthodontics of Reseda, Inc., a Delaware corporation,
as buyer ("Buyer").
RECITALS
This Asset Purchase Agreement is made with reference to the
following facts and circumstances:
A. Buyer is a management corporation engaged in the
business of providing professional management and marketing
services to orthodontic practices.
B. Seller is a California professional corporation that
operates a dental practice in premises located at 19231 Victory
Blvd., Suite 557, Reseda, California 91335 (the "Practice").
C. Seller desires to sell to Buyer and Buyer desires to
purchase from Seller certain assets of the Practice on the terms
and conditions set forth in this Asset Purchase Agreement.
NOW THEREFORE, in consideration of the covenants and
conditions contained herein and for other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1. Assets. On the "Closing Date" (as defined below),
Seller shall sell and assign to Buyer, and Buyer shall acquire
from Seller all of the assets listed in Exhibits 1.1(a) and
1.1(b) attached hereto ("Assets"), which may include certain
specified contracts ("Assumed Contracts").
1.2. Excluded Assets. Excluded from the sale shall be that
portion of the assets and properties of Seller listed in Exhibit
1.2 attached hereto ("Excluded Assets").
2. UNASSUMED LIABILITIES
Except as otherwise specifically listed in Exhibit 2.1
attached hereto ("Assumed Liabilities"), it is the intention of
the parties that Buyer will not assume and shall not be
responsible for any liabilities or obligations of Seller of any
kind or nature whatsoever and Seller agrees to forever hold Buyer
harmless and indemnify Buyer against such liabilities and
obligations, all of which shall remain the obligations of Seller
(the "Unassumed Liabilities").
3. PURCHASE PRICE OF ASSETS
3.1. Consideration. Subject to the terms and conditions of
this Asset Purchase Agreement and in full consideration of the
sale and transfer of the Assets, and in reliance on the
representations, warranties, and covenants of the parties hereto,
Buyer shall pay Seller Twenty-Five Thousand Dollars ($25,000.00)
(the "Purchase Price").
3.2. Purchase Price Allocation. The parties shall agree to
the allocation of the Purchase Price as set forth in Exhibit 3.2
attached hereto and shall use each allocation for purposes of
federal and state tax reporting.
3.3. Payment of Purchase Price. The Purchase Price shall be
paid as set forth in Exhibit 3.3 attached hereto.
3.4. Fair Market Value. The parties agree that the Purchase
Price reflects the fair market value of the Assets and Assumed
Liabilities as specifically bargained for by the parties.
3.5. Sales and Transfer Taxes. Any sales and transfer taxes
in respect of Seller's sale and transfer of the Assets and
Assumed Liabilities to Buyer shall be borne by Seller.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents and warrants to Buyer that the statements
in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this
Section 4), except as otherwise specifically set forth in the
disclosure schedule delivered by the Seller to Buyer on the date
of this Agreement and as updated (to the extent necessary to make
the statements therein correct and complete) on the Closing Date
and initialed by the parties ("Disclosure Schedule") in Exhibit 4
attached hereto. The Disclosure Schedule is to be arranged in
sections corresponding to the numbered and lettered sections
contained in this Section 4.
4.1. Organization. Seller is a California professional
dental corporation, validly formed, duly existing and in good
standing under the laws of the State of California. Seller is
the sole owner of the Assets and has all requisite authority to
own, lease, sell, assign and transfer the Assets. There are no
outstanding rights, warrants, convertible securities, preemptive
rights, buy-sell agreements, or other agreements or commitments
obligating Seller to sell or transfer any portion of the Assets
or obligating Seller to take or refrain from taking any actions.
4.2. Authorization. Seller has the power and authority to
enter into this Asset Purchase Agreement and consummate the
transactions contemplated hereby. All action on the part of
Seller necessary for the authorization, execution, delivery and
performance of this Asset Purchase Agreement and the consummation
of the transactions contemplated hereby has been or will be taken
prior to the Closing Date, and this Asset Purchase Agreement
(including exhibits, schedules and the ancillary agreements)
constitutes the legal, valid and binding obligation of Seller
enforceable in accordance with its terms.
4.3. No Consent Required; No Violation of Other Agreements.
Neither the execution of this Asset Purchase Agreement by Seller
nor the performance by Seller of its obligations under this Asset
Purchase Agreement, requires the consent of any third party,
which will not have been obtained and delivered to Buyer prior to
the Closing Date. Neither this Asset Purchase Agreement nor any
of the transactions contemplated hereunder violates or shall
violate any lease, contract, document, understanding, agreement
or instrument to which Seller is a party or by which he, she or
it may be bound, or any other lease, contract, document,
understanding, agreement or instrument affecting Seller, the
Assets or the Practice.
4.4. No Default. Seller is not in default under the terms
of any lease, contract, document, understanding, agreement or
instrument pertaining to the Practice, nor has any event occurred
that shall constitute a default by Seller under any of the same
following the passage of time or consummation of any of the
transactions contemplated hereunder, nor has Seller received any
notice of any default under any of the same. No acceleration or
other right to accelerate, terminate, modify, cancel, create a
security interest, or otherwise change any existing arrangement
will be created as a result of the consummation of any of the
transactions contemplated hereunder.
4.5. Conduct of Practice and No Material Changes. Between
the date of the execution of this Asset Purchase Agreement and
the Closing, Seller: (i) shall use best efforts to maintain and
preserve the Assets in good condition and repair, and to prevent
the imposition of any additional Liens (as defined below) on the
Assets, and (ii) shall not liquidate or dissolve Seller, take any
steps to do same, or inform any third person or entity that
Seller has done or intends to do the same.
4.6. Taxes. There are no delinquent federal or state
corporate income or franchise taxes or any federal, state or
local assessments due or owing by Seller with respect to the
Practice. Seller has timely filed or caused to be filed on its
own behalf and on behalf of its employees all tax returns
(federal, state and local) required to be filed by it on or
before the Closing Date, and all taxes shown to be due and
payable on said returns have been paid. There are no actions,
suits, proceedings, investigations, audits, claims or liens now
pending against or related to Seller, the Practice or the Assets
regarding any tax or assessment.
4.7. Title to Assets. At the Closing, Seller shall deliver
title to the Assets to Buyer free and clear of all security
interests, liens, claims, encumbrances, covenants and
restrictions of any nature whatsoever (collectively, "Liens")
except as expressly described on the Disclosure Schedule.
4.8. Right to Premises; Condition of the Property and
Premises. Seller either (i) owns in fee simple absolute the
premises in which the Practice is located ("Premises"); or (ii)
has a valid and enforceable lease for the Premises, and there are
no unpaid mortgage payments, rental payments or any other
applicable amounts now due and payable by Seller with respect to
the Premises or any uncured default by Seller, and no
governmental condemnation proceedings threatened or in process.
4.9. Contracts; Loan Documents.
4.9.1. Seller has furnished to Buyer, for Buyer's
inspection and review, true and complete copies of all contracts,
agreements, leases, documents, written understandings,
instruments, loan documents and security agreements relating to
the Practice or the Assets, if any, and any and all other
documents concerning any Liens against the Assets or any aspect
of the Practice.
4.9.2. The Assumed Contracts remain in full force
and effect in accordance with their terms as of the Closing Date.
Neither Seller nor any other party to any such contract or
agreement, is in default, or alleged to be in default thereunder,
and there exists no condition or event which, with the giving of
notice or the lapse of time or otherwise, would constitute such a
default by Seller or by any other party to any such contracts or
agreements. All of the Assumed Contracts are valid and
enforceable by Seller.
4.10. Powers of Attorney. There are no outstanding
powers of attorney executed on behalf of Seller.
4.11. No Litigation and Insurance. There is no pending
litigation or, to the best of Seller's knowledge, threatened
litigation, unasserted claim, or governmental investigation,
relating to the Assets or the Practice. Seller has adequately
provided insurance for all such claims and will continue to
maintain insurance against all liabilities, claims and risks
against which it is customary to insure.
4.12. Violation of Laws. To the best of Seller's
knowledge, Seller is not in violation of any law, rule,
regulation or administrative or judicial order pertaining to the
Assets or the Practice and, to the best of Seller's knowledge,
there is no law, rule, regulation or administrative or judicial
order that any of the transactions contemplated by this Asset
Purchase Agreement would violate.
4.13. No Brokers or Finders. Seller has not incurred
any liability to any broker, finder or agent for any brokerage
fees, finder's fees or commissions with respect to the
transactions contemplated by this Asset Purchase Agreement, and
if Seller incurred any such liability, such liability shall be
and remain the sole responsibility of Seller and Seller shall
indemnify, defend and hold Buyer harmless from and against any
and all liabilities, losses, damages, claims, causes of action,
costs and expenses (including, without limitation, reasonable
attorneys' fees), arising out of or relating to such liability.
4.14. No Bankruptcy Proceedings. Seller has not (i)
made a general assignment for the benefit of creditors, (ii)
filed any voluntary petition in bankruptcy or suffered the filing
of an involuntary petition by its creditors, (iii) suffered the
appointment of a receiver to take possession of all or
substantially all of its assets, (iv) suffered the attachment or
other judicial seizure of all or substantially all of its assets,
(v) admitted in writing its inability to pay its debts as they
come due, or (vi) made an offer of settlement, extension or
compromise to its creditors generally.
4.15. Patient Records. Seller has maintained, and
agrees to continue to maintain, the confidentiality of all
patient records as required by and in conformance with all
applicable state and federal laws and regulations. Seller has
not transferred, and agrees not to transfer, any patient records
to any individual or entity against the request of any patient
prohibiting the Seller from transferring his/her patient
information or records and shall at Closing retain custody of
such patient records on behalf of Buyer in accordance with
applicable state and federal laws and regulations.
4.16. Bulk Sales. The Practice is not an enterprise
subject to Division 6 of the Commercial Code of California, and
the transactions contemplated hereby are not subject to Division
6 of the California Uniform Commercial Code.
4.17. Inspections. The Disclosure Schedule sets forth
accurately and fully describes (i) all inspections of the Assets
or the Practice by any governmental agency or any consultant at
any time during the previous five (5) years; (ii) all matters
which were noted by any and all such governmental agency or
consultant as requiring correction or modifications which were
requested or recommended; and (iii) the present status of each
such noted matter.
4.18. No Untrue Statements. To the best of Seller's
knowledge, (i) Seller has not made any untrue statement or
representation in connection with this Asset Purchase Agreement,
(ii) all items transferred or delivered and/or given to Buyer by
or from Seller are true, correct and complete copies of what they
purport to be, (iii) there are no undisclosed liabilities of any
nature whatsoever in connection with the Practice or any of the
Assets, (iv) Seller has not failed to state or disclose any
material fact in connection with the transactions contemplated by
this Asset Purchase Agreement, and (v) Seller knows of no facts
and has not misrepresented any facts concerning its ability,
financial or otherwise, to consummate the transactions
contemplated by this Asset Purchase Agreement or that would
otherwise materially adversely affect Buyer's decision to acquire
the Assets.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer hereby represents and warrants to Seller that:
5.1. Organization. Buyer is a corporation validly existing
and in good standing under the laws of the State of Delaware.
5.2. Authority. Buyer has the corporate power and authority
to enter into this Asset Purchase Agreement and to consummate the
transactions contemplated hereby.
5.3. No Brokers or Finders. Buyer has not incurred any
liability to any broker, finder or agent for any brokerage fees,
finder's fees or commissions with respect to the transactions
contemplated by this Asset Purchase Agreement, and if Buyer
incurred any such liability, such liability shall be and remain
the sole responsibility of Buyer, and Buyer shall indemnify,
defend and hold Seller harmless from and against any and all
liabilities, losses, damages, claims, causes of action, costs and
expenses (including, without limitation, reasonable attorneys'
fees), arising out of or relating to such liability.
5.4. No Violation of Other Agreement. Neither this Asset
Purchase Agreement nor any of the transactions contemplated
hereunder violates or shall violate any lease, contract,
document, understanding, agreement or instrument to which Buyer
is a party or by which it may be bound, or any lease, contract,
document, or instrument affecting Buyer.
5.5. No Consent Required. Neither the execution of this
Asset Purchase Agreement by Buyer, nor the performance by Buyer
of its obligation under this Asset Purchase Agreement, requires
the consent of any third party that will not have been obtained
and delivered to Seller prior to the Closing Date.
5.6. No Bankruptcy Proceedings. Buyer has not (i) made a
general assignment for the benefit of creditors, (ii) filed any
voluntary proceeding in bankruptcy or suffered the filing of any
involuntary petition by Buyer's creditors, (iii) suffered the
appointment of a receiver to take possession of all or
substantially all of the assets, properties or business of Buyer,
(iv) suffered the attachment or other judicial seizure of all or
substantially all of the assets, properties or business of Buyer,
(v) admitted in writing its inability to pay its debts as such
debts become due, or (vi) made an offer of settlement, extension
or compromise to its creditors generally.
5.7. No Untrue Statements. To the best of Buyer's
knowledge, (i) Buyer has made no untrue statement or
representation in connection with this Asset Purchase Agreement,
and (ii) Buyer knows of no facts and Buyer has not misrepresented
any facts concerning Buyer's ability, financial and otherwise, to
consummate the transactions contemplated by this Asset Purchase
Agreement or that would otherwise materially adversely affect
Seller's decision to sell the Assets.
6. BUYER'S ACCESS TO RECORDS; CONFIDENTIAL INFORMATION;
PUBLICITY
6.1. Access to Records. Between the date of the execution
hereof and the Closing, Buyer, its appraisers, accountants,
consultants, counsel and other representatives shall have access
during normal business hours to the tax returns, books, records,
licenses, certifications, contracts, agreements and all other
relevant documentation of Seller. Neither Buyer nor its
representatives shall disclose the contents of any of said
materials that Buyer has discovered in the course of its due
diligence ("Due Diligence") to any third party without the prior
written consent of Seller, except: (i) as required by law; (ii)
as may be reasonably necessary in connection with any litigation
or dispute arising out of this Asset Purchase Agreement or any of
the transactions contemplated hereunder; (iii) information
contained in any such materials that was already in Buyer's
possession prior to the date hereof; and (iv) information
contained in any such materials that is or becomes generally
available to the public other than as a result of a disclosure by
Buyer or its agents or employees in violation of this Section
(collectively, the "Exceptions").
6.2. Confidential Information. Seller agrees that at all
times following the Closing Date, Seller shall not use for its
benefit or for any third party's benefit, any confidential
information or trade secrets of Buyer, any "Affiliate" (as
defined below), or of any successor or assignee of Buyer or any
Affiliate, and shall not disclose or cause to be disclosed to any
third party any confidential information or trade secrets of
Buyer, any Affiliate, or any of their respective successors or
assigns at any time on or after the Closing Date. As used
herein, "Affiliate" shall mean any affiliated or related
organization of Buyer.
6.3. Publicity. No party shall, at any time on or after the
date hereof through the Closing Date, issue any publicity or
written or oral statement, or otherwise disclose the existence of
this Asset Purchase Agreement or any of the terms or conditions
hereof, or disclose the contemplation, implementation or
consummation of any of the transactions intended hereby (other
than to its directors, officers, employees, attorneys, financial
advisors and other agents and representatives, as necessary in
order to negotiate, evaluate, approve and consummate the
transactions hereunder), without the prior written consent of
Buyer (in the case of Seller) or Seller (in the case of Buyer),
except in accordance with any of the Exceptions as set forth in
Section 6.1, and except as reasonably required of Buyer by any
applicable federal or state securities law (or agency's)
disclosure requirements. In the case of any written publicity or
statement, the applicable party with the above right of consent
shall have the right to approve in advance the specific language
of any such writing, provided that such approval may not be
unreasonably withheld in the event of occurrence of any of the
Exceptions.
7. CLOSING; CONDITIONS TO OBLIGATIONS TO CLOSE
7.1. Closing and Closing Date. The transactions
contemplated by this Asset Purchase Agreement shall be
consummated at the "Closing." The Closing shall take place at
the offices of Lewitt, Hackman, et al., 16633 Ventura Boulevard,
11th Floor, Encino, California 91436, or at such other place as
may be designated by Seller and Buyer, on the Closing Date. The
Closing Date shall be January 7, 1998, or such other date as
shall be agreed between the parties.
7.2. Deliveries by Seller. At the Closing, Seller shall
execute (as to documents calling for execution) and deliver to
Buyer the following:
7.2.1. A Bill of Sale in the form of Exhibit 7.2.1
attached hereto ("Bill of Sale") and such other sufficient
instruments and documents to convey, transfer, assign, or further
perfect, title to each of the Assets (including the Assumed
Contracts) as are reasonably requested by Buyer to transfer the
Assets.
7.3. Deliveries by Buyer. At the Closing, Buyer shall
deliver to Seller the payment of the Purchase Price in accordance
with Exhibit 3.3 attached hereto.
7.4. Conditions to Buyer's Obligations. Buyer's obligation
to consummate the transactions contemplated by this Asset
Purchase Agreement is conditioned upon satisfaction, or waiver by
Buyer in writing, of all of the following on or before the
Closing Date:
7.4.1. The performance by Seller of all of Seller's
promises and agreements under this Asset Purchase Agreement that
are to be performed as of the Closing, including but not limited
to the procurement and delivery to Buyer of all necessary
assignments and consents.
7.4.2. Buyer's reasonable approval or satisfaction
of each item under this Asset Purchase Agreement that Buyer is
entitled to approve or to be satisfied, including, without
limitation, all schedules and exhibits hereto and all items that
Buyer reviews pursuant to its Due Diligence efforts.
7.4.3. No suit, action, arbitration or legal,
administrative or other proceeding or governmental investigation
shall be pending or threatened against Buyer or Seller in
relation to or affecting the consummation of the transactions
contemplated by this Asset Purchase Agreement.
7.4.4. Each of the representations and warranties of
Seller is true as of the Closing.
7.4.5. The Assets have not been damaged and there
has been no adverse change from the date of this Asset Purchase
Agreement.
7.4.6. Buyer has not exercised any of the
cancellation options under Section 9 below.
7.5. Conditions to Seller's Obligations. Seller's
obligation to consummate the transactions contemplated by this
Asset Purchase Agreement is conditioned upon satisfaction, or
waiver by Seller in writing, of all of the following on or before
the Closing Date:
7.5.1. The performance by Buyer of all of Buyer's
promises and agreements under this Asset Purchase Agreement that
are to be performed as of Closing.
7.5.2. Seller's reasonable approval or satisfaction
of each item under this Asset Purchase Agreement regarding which
Seller is entitled to approve or to be satisfied.
7.5.3. No suit, action, arbitration or legal,
administrative or other proceeding or governmental investigation
shall be pending or threatened against Buyer or Seller in
relation to or affecting the consummation of the transactions
contemplated by this Asset Purchase Agreement.
7.5.4. Each of the representations and warranties of
Buyer is true as of the Closing.
8. INDEMNIFICATION
8.1. Seller's Indemnity. Seller shall indemnify, defend and
hold Buyer, its affiliates, and their directors, officers,
employees, attorneys, and agents harmless from and against any
and all liabilities, losses, damages, claims, causes of action,
costs and expenses (including, without limitation, reasonable
attorneys' fees), whether known or unknown, arising out of or
relating to (i) Seller's ownership or operation of the Assets or
the Practice, including any defects in title; (ii) any other
actions or omissions of Seller prior to the Closing Date; or
(iii) any breach by Seller of any representation, warranty or any
other material term or condition in this Asset Purchase Agreement
(including the exhibits and attachments) or any ancillary
agreement, document, or certificate to be delivered in connection
with this Asset Purchase Agreement.
8.2. Buyer's Indemnity. Buyer shall indemnify, defend and
hold Seller harmless from and against any and all liabilities,
losses, damages, claims, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees),
arising out of or relating to any breach of any warranty or any
other material term or condition hereof by Buyer.
8.3. Buyer's Recoupment and Offset Rights. In addition to
Buyer's rights under Section 8.1 to seek indemnity from Seller,
Buyer shall have the rights of recoupment and offset against any
payments owed to Seller by Buyer or any of Buyer's Affiliates
under any agreement. Such recoupment and offset rights are in
addition to, and not in derogation of, any statutory, equitable,
common law, or other remedy.
9. BUYER'S CANCELLATION OF ASSET PURCHASE AGREEMENT
9.1. Jeopardy. In the event the performance by any party
hereto of any term, covenant, condition or provision of this
Asset Purchase Agreement should jeopardize (i) the participation
of Buyer or Seller in any reimbursement or payment program or
(ii) if for any other reason said performance should be in
violation of any statute, ordinance, or be otherwise deemed
illegal, or be deemed unethical by any recognized California or
federal judicial body or California or federal governmental
agency (collectively, "Jeopardy Event"), then the parties shall
use their best efforts to meet forthwith and attempt to negotiate
an amendment to this Asset Purchase Agreement to remove or negate
the effect of the Jeopardy Event. In the event the parties are
unable to negotiate such an amendment within fifteen (15) days
following written notice by either party of the Jeopardy Event,
then Buyer may cancel this Asset Purchase Agreement prior to the
Closing immediately upon written notice.
9.2. Due Diligence. In the event Buyer is dissatisfied with
any item or information discovered as a result of Due Diligence
or that is contained in any exhibit or schedule hereto, and
Seller is unable to satisfy Buyer's concern(s) on or before the
Closing Date, then Buyer may cancel this Asset Purchase Agreement
immediately upon notice.
9.3. Exercise of Cancellation Options. In the event Buyer
exercises any of the cancellation options described above, it
shall so notify Seller in writing and each party shall return
forthwith all originals and copies of any financial or other
records, instruments, or other documents it has received from the
other party and, except as provided in this Asset Purchase
Agreement, all of the parties' respective rights and obligations
hereunder shall terminate immediately. Notwithstanding the
foregoing, the parties' respective obligations under Section 6
above shall survive Buyer's exercise of any of said cancellation
options.
10. MISCELLANEOUS
10.1. Risk of Loss. Until the Closing, Seller shall
bear all risk of loss, damage or destruction to the Assets.
10.2. No Third Party Beneficiaries. The parties intend
that the benefits of this Asset Purchase Agreement shall inure
only to Buyer and Seller except as expressly so stated herein.
Notwithstanding anything contained herein, or any conduct or
course of conduct by any party hereto, before or after signing
this Asset Purchase Agreement, this Asset Purchase Agreement
shall not be construed as creating any right, claim or cause of
action against Buyer or Seller by any other person or entity.
10.3. Entire Agreement. This Asset Purchase Agreement,
together with all exhibits and schedules hereto, and all
documents referred to herein (including without limitation any
ancillary agreements), constitutes the entire agreement between
the parties with respect to the subject matter hereof, supersedes
all other and prior agreements on the same subject, whether
written or oral, and contains all of the covenants and agreements
between the parties with respect to the subject matter hereof.
Each party to this Asset Purchase Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or
otherwise, have been made by the other party(ies), or by anyone
acting on behalf of any party, that are not embodied herein, and
that no other agreement, statement, or promise not contained in
this Asset Purchase Agreement shall be valid or binding.
10.4. Successors and Assigns. This Asset Purchase
Agreement shall be binding upon and shall inure to the benefit of
the parties and their respective heirs (as applicable), legal
representatives, and permitted successors and assigns. No party
may assign this Asset Purchase Agreement or the rights, interests
or obligations hereunder. Any assignment or delegation in
contravention of this Section shall be null and void.
10.5. Counterparts. This Asset Purchase Agreement, and
any amendments hereto, may be executed in counterparts, each of
which shall constitute an original document, but which together
shall constitute one and the same instrument.
10.6. Headings. The section headings contained in this
Asset Purchase Agreement are inserted for convenience only and
shall not affect in any way the meaning or interpretation of this
Asset Purchase Agreement.
10.7. Notices. Any notices required or permitted to be
given hereunder by any party to the other 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 specify
in writing:
If to Seller: Sharon M. Crowder, D.D.S.
Sharon M. Crowder, D.D.S., Inc.
19231 Victory Blvd., Suite 557
Reseda, California 91335
If to Buyer: Robert J. Schulhof
Omega Orthodontics of Reseda, Inc.
c/o Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
10.8. Governing Law. This Asset Purchase Agreement
shall be governed by and construed in accordance with the laws of
the State of California.
10.9. Amendment. This Asset Purchase Agreement may be
amended at any time by agreement of the parties, provided that
any amendment shall be in writing and executed by all parties.
10.10. Severability. If any provision of this Asset
Purchase Agreement is held by a court of competent jurisdiction
to be invalid or unenforceable, the remaining provisions will
nevertheless continue in full force and effect, unless such
invalidity or unenforceability would defeat an essential business
purpose of this Asset Purchase Agreement.
10.11. Fees and Expenses. Except as otherwise explicitly
set forth otherwise in writing signed by the parties, each of
Seller and Buyer agrees to bear its own expenses including,
without limitation, attorneys' and accountants' fees in
connection with the preparation of this Asset Purchase Agreement
and the transactions contemplated hereby.
10.12. Exhibits and Schedules. All exhibits and schedules
attached to this Asset Purchase Agreement are incorporated herein
by this reference and all references herein to "Asset Purchase
Agreement" shall mean this Asset Purchase Agreement together with
all such exhibits and schedules, and all ancillary agreements to
be delivered at Closing.
10.13. Survival of Indemnities, Representations and
Warranties. Except as expressly stated to the contrary herein,
the indemnities, representations and warranties of Buyer and
Seller contained in this Asset Purchase Agreement or in any
certificate or document delivered pursuant to the provisions
hereof shall survive the Closing.
10.14. Time of Essence. Time is expressly made of the
essence of this Asset Purchase Agreement and each and every
provision hereof of which time of performance is a factor.
10.15. Grievances and Arbitration. Except as specifically
stated elsewhere in this Agreement, any controversy or claim
arising out of this Asset Purchase Agreement shall be settled by
arbitration in Los Angeles, California in accordance with the
Commercial Rules of the American Arbitration Association then
existing, and judgment on the arbitration award may be entered in
any court having jurisdiction over the subject matter of the
controversy. All disputes shall be settled by a panel of not
less than three (3) arbitrators chosen from any one or more
offices of the American Arbitration Association.
10.16. Specific Performance. The Seller acknowledges and
agrees with Buyer that in the event Seller terminates this Asset
Purchase Agreement or otherwise fails to close, Buyer would be
irreparably damaged thereby and that monetary damages would not
provide an adequate remedy. Accordingly, it is agreed that, in
addition to any other remedies that Buyer may have at law or in
equity, the Buyer shall be entitled to specific performance and
injunctive relief to prevent such a breach and specifically to
enforce the terms and provisions hereof in any action instituted
in a court of competent jurisdiction.
10.17. Attorneys' Fees. Should either Buyer or Seller
institute any action or procedure to enforce this Asset Purchase
Agreement or any provision hereof, or for damages by reason of
any alleged breach of this Asset Purchase Agreement or of any
provision hereof, or for a declaration of rights hereunder
including without limitation 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.
10.18. Construction. The parties have participated jointly
in the negotiation and drafting of this Asset Purchase Agreement
and in the event of any ambiguity or question of intent or
interpretation, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Asset Purchase Agreement.
10.19. 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 Asset Purchase Agreement and
the intentions of the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this Asset
Purchase Agreement as of the date first written above.
"BUYER"
OMEGA ORTHODONTICS OF RESEDA, INC.,
a California corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President
"SELLER"
SHARON M. CROWDER, D.D.S., INC.
By: /s/ Sharon M. Crowder, D.D.S.
Sharon M. Crowder, D.D.S., President
LIST OF EXHIBITS
EXHIBIT
1.1(a) Assets
1.1(b) Assumed Contracts
1.2 Excluded Assets
2.1 Assumed Liabilities
3.2 Allocation of Purchase Price
3.3 Payment
4 Disclosure Schedule
7.2.1 Form of Bill of Sale
EXHIBIT 1.1(a)
ASSETS
1. All contracts and agreements which Buyer determines in
its sole discretion to assume as itemized on Exhibit 1.1(b).
2. All accounts receivable of Seller ("Accounts
Receivable") on the close of business on the Closing Date. As
used herein, "Accounts Receivable" shall include all rights to
payment for goods or services rendered, whether or not yet earned
by performance, all other obligations and receivables from others
no matter how evidenced relating to the Practice, including
purchase orders, notes, instruments, drafts and acceptances and
all guarantees of the foregoing and security therefor, relating
to the Practice.
3. Seller's furniture, fixtures, leasehold improvements,
machinery, equipment, inventories, supplies and other tangible
personal property used in the Practice listed on Schedule 1
attached hereto.
4. Seller's right to reimbursement for all professional
services provided to managed care and fee-for-service patients.
Schedule 1
To Exhibit 1.1(a)
FURNITURE, FIXTURES, ETC.
1. Television
2. Computer:
a. Monitors (2)
b. Keyboards
c. Laser printer
d. Hard drive
3. Refrigerators (2)
4. Scale & postage meter (leased)
5. Copy machine
6. Dentronix sterilizer
7. Ultra Sonic cleaner
8. Electronic mixing bowl
9. Wax heater
10. Telephone system
11. Lathe
12. Lathe accessories
13. Welder
14. Model timmer
15. Vibrator
16. Sta Vac Vacuum former
17. 5 chairs:
a. Chair controls and fountains
b. Over chair tables
18. 4 Pelton Crane lights, 1 Halogen over chair - Welch Allyn
light
19. Lab pliers
20. 2 Dremels
21. Stereo system
22. Typewriter
23. Paper cutter
24. Cotton roll holders
25. Mobile cart
26. Trash cans
27. Study model boxes
28. Reception room furniture:
a. 3 sofas
b. 3 lamps
c. 1 table
d. 2 pictures
29. 4 Operatory chairs
30. 4 desk chairs
31. 1 Lab chair
32. Lab supplies:
a. Solder
b. Wire
c. Acrylic
33. Operatory supplies:
a. Brackets = 1,200 Bands = 500
b. Wires
c. Cotton rolls
d. Facemasks & Headgear
34. Miscellaneous hand instruments:
a. Mirrors
b. Scalers - etc.
c. Pliers 140
35. Office supplies & small tools:
a. Paper hole punch
b. Toothbrushes
c. Staplers
d. Solder
e. Elastics
f. Wax
g. Fluid
EXHIBIT 1.1(b)
ASSUMED CONTRACTS
1. Contract for postal machine (ie, Pitney-Bowes)
2. Office lease relating to:
19231 Victory Blvd., Suite 557
Reseda, California 91335
EXHIBIT 1.2
EXCLUDED ASSETS
1. All right, title and interest of Seller in all
agreements, contracts, leases, loans, security agreements and any
other agreements of any nature whatsoever except as otherwise
specifically set forth herein on Exhibit 1.1(b), Assumed
Contracts.
2. All employee pension and profit sharing plans and
funds, deferred compensation and similar fringe or employee
benefit plans or programs, any disability or other employee
insurance plans, any employment and executive compensation
agreements, bonus and stock option plans, and any funds or
property held in trust for employees.
3. All cash, bank balances, monies in possession of any
bank, other cash items and marketable securities of Seller.
4. Ownership of all trademarks, trade names, copyrights,
logos, licenses, ownership interests in telephone numbers at
Practice, or related items of Seller that in any way pertain to
the Practice.
5. All patient records, files and X-rays.
6. All of Seller's goodwill, which may include location
goodwill, name recognition goodwill, patient allegiance, etc.
7. All business, financial and accounting records and
books of account of Seller relating to the Practice exclusive of
Seller's general ledger.
8. A license to use (but not to own) all trademarks, trade
names, copyrights, logos, licenses, ownership interests in
telephone numbers at Practice, or related items of Seller that in
any way pertain to the Practice.
EXHIBIT 2.1
ASSUMED LIABILITIES
1. Those Assumed contracts set forth in Exhibit 1.1(b),
provided, however, that with respect to the Office Lease
described in item 2 of said Exhibit, liability is assumed by
Buyer only from and after the closing date and any rent due for
the month in which the closing occurs shall be allocated on a pro
rata basis between Buyer and Seller.
EXHIBIT 3.2
ALLOCATION OF PURCHASE PRICE
Assets
Contracts and Agreements
Accounts Receivable
Furniture, Fixtures, Equipment and other Tangible Assets
Trademarks, Trade Names, Copyrights, Logos, Telephone
Numbers and Certain Licenses
Reimbursement Rights
EXHIBIT 3.3
PAYMENT
Buyer shall pay Seller on the Closing Date Twenty-Five Thousand
Dollars ($25,000) in cash, payable to Seller by way of cashier's
check or wire transfer of immediately available funds into a
deposit account designated in writing by Seller prior to the
Closing Date.
EXHIBIT 4
DISCLOSURE SCHEDULE
[The Disclosure Schedule is to be arranged in sections
corresponding to the numbered and lettered sections contained in
Section 4.]
Not Applicable.
EXHIBIT 7.2.1
FORM OF BILL OF SALE
BILL OF SALE
FOR VALUABLE CONSIDERATION, the receipt and adequacy of
which are hereby acknowledged, Sharon M. Crowder, D.D.S., Inc.,
a California professional dental corporation ("Seller"), hereby
sells and assigns to Omega Orthodontics of Reseda, Inc., a
Delaware corporation ("Buyer"), and its successors and assigns,
to have and to hold forever, one hundred percent (100%) of all of
the right, title and interest of Seller in every item of property
that is listed in Exhibit 1.1(a) to the Agreement for the
Purchase and Sale of Assets, made and entered into as of January
7, 1998, by and between Buyer and Seller (the "Asset Purchase
Agreement").
In addition, Seller hereby sells and assigns to Buyer
one hundred percent (100%) of all of Seller's right, title and
interest in the contracts and agreements which are listed in
Exhibit 1.1(b) to the Asset Purchase Agreement and Buyer hereby
accepts such assignment and assumes and agrees to be bound by and
to perform one hundred percent (100%) of all of the duties and
obligations of Seller thereunder.
Buyer and Seller will do, execute, acknowledge and
deliver or cause to be done, executed, acknowledged and
delivered, each and all of such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may
reasonably be required by Buyer to sell and assign to Buyer, its
successors and assigns, title to the assets sold and assigned by
this Bill of Sale.
IN WITNESS WHEREOF, Seller and Buyer have executed this
Bill of Sale for delivery as of the 7th day of January, 1998.
Seller: Sharon M. Crowder, D.D.S., Inc.,
a California professional dental corporation
By:
Sharon M. Crowder, D.D.S.
Buyer: Omega Orthodontics of Reseda,
Inc.,
a Delaware corporation
By:
Robert J. Schulhof, President
EXHIBIT 2.13
AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
is entered into as of the 9th day of January, 1998, by and among
Omega Orthodontics of Woodland Hills , Inc., a Delaware
corporation ("Subsidiary" or "Surviving Entity"); Omega
Orthodontics, Inc., a Delaware corporation ("OMEGA"), Sharon M.
Crowder, D.D.S. ("Dr. Crowder") and Scott E. Feldman, D.D.S.
("Dr. Feldman") who are duly licensed to practice orthodontics in
the State of California (the "State"); and Omega Orthodontics of
Reseda, Inc., a Delaware corporation (the "MSO").
RECITALS
A. OMEGA and its subsidiaries, including the Subsidiary,
provide 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 MSO provides management services to Scott E.
Feldman, D.D.S., M.S., Inc., a California professional dental
corporation (the "Orthodontic Entity"), which owns and operates
an orthodontic practice (the "Practice") with offices located at
19231 Victory Boulevard, Suite 557, Reseda, California 91335 (the
"Orthodontic Offices") and furnishes orthodontic care to the
general public through the services of Dr. Feldman affiliated
with the Orthodontic Entity.
C. Dr. Crowder and Dr. Feldman presently hold 100% of the
issued and outstanding capital stock of the MSO (the issued and
outstanding capital stock is hereafter referred to herein as the
"Interests") and Dr. Feldman presently holds 100% of the issued
and outstanding capital stock of the Orthodontic Entity.
D. OMEGA has conducted a review of the Practice, and has
reviewed the unaudited financial and operations statement of the
practice provided by Dr. Crowder and Dr Feldman (the "Financial
Statement"), a copy of which is attached hereto as Exhibit A .
Based on its review of the Practice 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.
E. Subject to the terms and conditions of this Agreement,
OMEGA, Dr. Crowder and Dr. Feldman have determined that it is in
the best interests of each to effect a merger of the MSO with and
into the Subsidiary (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 1.
MERGER
a. Merger; Consideration and Payment.
i. 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 the Subsidiary will be the surviving
entity.
ii. At the Effective Time, the Interests of the MSO
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:
(1) Ninety Thousand Dollars ($90,000) in cash
(the "Cash Component");
(2) One Hundred and Eighty Thousand Dollars
($180,000) to be represented by issuance to Drs. Crowder and
Feldman of shares of OMEGA common stock ("OMEGA Stock") based on
a value per share equal to the average daily closing sales price
per share of OMEGA common stock for each business day (Monday
through Friday, not including legal holidiays) of the calendar
week ending on the Friday immediately preceding the Closing Date
(the "Stock Component"), which shall thereupon be issued to Drs.
Crowder and Feldman, fully paid and nonassessable.
iii. The Cash Component shall be allocated and paid,
$67,500 to Dr. Crowder and $22,500 to Dr. Feldman. The stock
component shall be allocated and paid $83,000 to Dr. Crowder and
$97,000 to Dr. Feldman.
b. Adjustment and Audit.
i. 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.
ii. The Consideration shall be subject to adjustments
at Closing for: (i) prepaid and underpaid rent and other lease
obligations, if any 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 MSO which have accrued
prior to the Effective Time and which remain unpaid as of such
time (the "Accounts Payable").
iii. 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.
c. 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 Lewitt, Hackman, et al., 16633 Ventura Boulevard, 11th
Floor, Encino, California 91436 on January 9, 1998, or at such
other place, date or time as may be fixed by mutual agreement of
the parties.
d. Filing Certificate of Merger. Contemporaneous with the
Closing, a duly executed Certificate(s) of Merger shall be filed
with the Delaware Secretary of State and the State Secretary of
State (if required).
e. Delivery of Records, Contracts, Interests. At the
Closing Drs. Crowder and Feldman shall deliver or cause to be
delivered to the Subsidiary:
i. all of the MSO's minute books, stock records and
other company books and records and the MSO's leases, contracts,
employment agreements, non-compete agreements, commitments and
rights, with such consents to the Merger as are necessary to
assure the Subsidiary of the full benefit of the same.
ii. Evidence of malpractice insurance coverage for
Sharon M. Crowder, D.D.S., Inc. for the current and five (5)
prior years.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Crowder, Dr.
Feldman and the MSO in the attached Schedule 1 are hereby
incorporated as if fully set forth herein. The Representations
and Warranties of OMEGA and the Subsidiary 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 3.
COVENANTS OF DR. CROWDER, DR. FELDMAN,
THE MSO AND THE ORTHODONTIC ENTITY
Dr. Crowder, Dr. Feldman, the MSO and the Orthodontic Entity
hereby covenant and agree with OMEGA as follows:
a. Conduct of Business. Between the date of this
Agreement and the Closing, they will do the following, unless
OMEGA shall otherwise consent in writing:
i. conduct the business of the Orthodontic Entity and
the MSO 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;
ii. 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 MSO or the Orthodontic Entity;
iii. refrain from incurring any contingent or fixed
obligations or liabilities except those that are usual and normal
in the ordinary course of business;
iv. refrain from making any change or incurring any
obligation to make a change in its Charter or By-laws of the
Orthodontic Entity or the MSO (certified copies of which are
attached hereto as Exhibit C) or authorized or issued capital
stock, except as contemplated by this Agreement;
v. 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 MSO or the
Orthodontic Entity;
vi. use their best efforts to keep intact their
business organization, to keep available its present agents and
employees and to preserve the goodwill of all patients,
suppliers, and others having business relations with it;
vii. not commit or fail to commit any act which would
cause Dr. Crowder, Dr. Feldman or the Orthodontic Entity to
suffer the revocation, suspension or limitation of Dr. Crowder's,
Dr. Feldman's or the Orthodontic Entity's license to practice
dentistry.
viii. permit OMEGA and its authorized
representatives to have full access to all the properties,
assets, records, tax returns, company records, contracts and
documents of the Orthodontic Entity and the MSO and furnish to
OMEGA or its authorized representatives such financial and other
Information with respect to their business or properties as OMEGA
may from time to time reasonably request.
b. 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.
Crowder, Dr. Feldman, the MSO and the Orthodontic Entity of the
transactions contemplated by this Agreement.
c. 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.
d. Consummation of Agreement. Each shall use his, her 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 4.
COVENANTS OF OMEGA
OMEGA each hereby covenants and agrees with Dr. Crowder, Dr.
Feldman, the MSO and the Orthodontic Entity as follows:
a. 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.
b. 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 5.
CONDITIONS TO OBLIGATIONS OF OMEGA AND THE SUBSIDIARY
The obligations of OMEGA and the Subsidiary 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 V will have been accomplished.
a. Representations; Warranties; Covenants. Each of the
representations and warranties of the Orthodontic Entity, the
MSO, Dr. Feldman and Dr. Crowder contained in Schedule 1 shall be
true and correct as though made on and as of the Closing, and Dr.
Crowder, Dr. Feldman, the MSO and the Orthodontic Entity shall
have performed all of their or its obligations hereunder which by
the terms hereof are to be performed on or before the Closing.
b. Orthodontic Entity. Dr. Feldman shall have formed the
Orthodontic Entity under the laws of the State in order to
conduct the Practice through the Orthodontic Entity. Dr. Crowder
shall have furnished: (i) a certificate of the State Secretary of
State as to the legal existence and professional corporation good
standing of the Orthodontic Entity; and (ii) a copy of the
resolutions adopted by the board of directors and stockholders of
the Orthodontic Entity authorizing and approving the Management
Services Agreement and the Stock Put/Call Option and Successor
Designation Agreement.
c. Other Agreements. Dr. Crowder and Dr. Feldman shall
have executed and delivered, or shall have caused the Orthodontic
Entity and deliver, to the MSO Management Services Agreements
having substantially the terms and conditions of the form hereof
collectively attached hereto as Exhibit D.
d. 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.
e. Notices. The Orthodontic Entity shall, at OMEGA's
expense, notify all of its 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 B.
f. Financial Condition. The financial condition of the
Orthodontic Entity and the MSO 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 or the MSO , nor any material loss or
damage to its assets, whether or not insured, which materially
affects the ability of Orthodontic Entity or the MSO 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.
g. 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. Crowder, Dr. Feldman, the MSO 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 and the MSO 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 and the MSO 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. Crowder, Dr. Feldman, the MSO 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.
h. Performance of Letter of Intent. Dr. Crowder and Dr.
Feldman shall have duly performed their obligations under
Paragraphs 2, 3, 4, 5 and 7 of that certain Letter of Intent by
and among Dr. Crowder and Dr. Feldman, dated October 30, 1997
(the "Letter of Intent").
ARTICLE 6.
CONDITIONS TO OBLIGATIONS OF THE
ORTHODONTIC ENTITY AND DR. CROWDER
The obligations of the Orthodontic Entity, the MSO, Dr.
Feldman and Dr. Crowder 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 dVI will have been accomplished.
a. 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.
b. 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.
Crowder and Dr. Feldman is likely to result in the restraint or
prohibition of the consummation of any material transaction
contemplated hereby.
ARTICLE 7.
OBLIGATIONS AFTER CLOSING
a. OMEGA Exceptional Practice and the Report Suggestions.
On and after the Closing, Dr. Feldman agrees to cause the
Orthodontic Entity to implement the suggestions in the Report and
the concepts of OMEGA's Exceptional Practice.
b. Books and Records. OMEGA shall permit Dr. Crowder and
Dr. Feldman, their accountants and attorneys, reasonable access
to such books and records for the purpose of preparing such tax
returns of Dr. Crowder and Dr. Feldman as may be required after
the Closing and for other proper purposes approved by OMEGA.
c. 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 Orthodontic Entity to suffer the revocation,
suspension or limitation of Dr. Feldman's the Orthodontic
Entity's license.
ARTICLE 8.
INDEMNIFICATION
a. Indemnification By Drs. Crowder and Feldman. Subject
to the limitations set forth in Section 8.3, Dr. Crowder and Dr.
Feldman jointly and severally agree to defend, indemnify and hold
OMEGA and the Subsidiary 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 the Subsidiary based upon a breach of any
representation, warranty or covenant made by the Orthodontic
Entity, the MSO, Dr. Crowder 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.
b. Indemnification By OMEGA. Subject to the limitations
set forth in Section 9.3, OMEGA agrees to defend, indemnify and
hold Dr. Crowder and 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. Crowder and 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.
c. Exclusions. Notwithstanding Sections 8.1 and 8.2:
i. no indemnification shall be payable to the extent
any claim is covered by insurance; and
ii. no indemnification shall be payable with respect
to claims asserted more than five (5) years after the Closing.
d. 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.
e. Payment of Claims; Alternative Dispute Resolution.
i. Indemnification claims by OMEGA or the Subsidiary
shall be paid or otherwise satisfied by Dr. Crowder or Dr.
Feldman, within 30 days after notice thereof is given by OMEGA
or the Subsidiary, respectively. In the event Dr. Crowder or Dr.
Feldman indicates in a writing delivered to OMEGA that either
disputes the nature or amount of the claim, the dispute shall,
upon the election of any party hereto after said 30-day period,
be settled in accordance with Section 8.5(b).
ii. 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 8.5, 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.
iii. Notwithstanding anything in this Section 8.5 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 9.
MISCELLANEOUS
a. Termination. 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. Crowder or Dr. Feldman if the conditions stated in
Article VII have not been satisfied at or prior to the Closing.
b. 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.
c. 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.
d. 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. Crowder and the Orthodontic Entity, to:
Sharon M. Crowder, D.D.S.
368 North Kanan Road
Agoura, California 91305
If to Dr. Feldman, to:
Scott E. Feldman, D.D.S.
6325 Topanga Canyon Boulevard, Suite 424
Woodland Hills, California 91367
If to 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.
e. 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 Letter of Intent, 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.
f. 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.
g. 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.
h. 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.
i. 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 MSO and is not in any way
related to or dependent upon referrals by and between OMEGA, the
Subsidiary and Dr. Crowder or Dr. Feldman.
j. Further Assurances. Following the execution of this
Agreement, Dr. Crowder, Dr. Feldman, Orthodontic Entity, the MSO,
the Subsidiary and OMEGA each agrees:
i. 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;
ii. 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
iii. 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.
k. 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.
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/ Sharon M. Crowder, D.D.S /s/ Scott E.
Feldman, D.D.S .
Sharon M. Crowder, D.D.S. Scott E. Feldman,
D.D.S.
SHARON M. CROWDER, INC. OMEGA ORTHODONTICS, INC.
By:/s/ Sharon M. Crowder, D.D.S. By:/s/ Robert J.
Schulhof
Sharon M. Crowder, D.D.S. Robert J.
Schulhof
Its President Its President
and Chief Executive Officer
Duly Authorized Duly Authorized
OMEGA ORTHODONTICS OF OMEGA ORTHODONTICS OF
WOODLAND HILLS, INC. RESEDA, INC.
By/s/ Robert J. Schulhof By:/s/ Robert J. Schulhof
Robert J. Schulhof Robert J.
Schulhof
Its President Its President
and Chief Executive Officer
Duly Authorized Duly Authorized
Exhibit A
Financial Statement
Exhibit B
Notices
Exhibit C
Orthodontic Entity's Charter and
By-Laws
Exhibit D
Draft Management Services Agreements and
Stock Put/Call Option and Successor Designation Agreement
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 with
the assistance of the American Arbitration Association, unless
the parties agree otherwise in finding a mutually acceptable
mediator.
5. Each party to a dispute shall bear an equal share of
the fees and costs of the mediator and any fees and costs of the
American Arbitration Association.
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 American Arbitration Association.
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 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 Los Angeles,
California before a qualified sole arbitrator in accordance with
the then current commercial arbitration rules of the American
Arbitration Association. 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 American Arbitration Association. 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.
Schedule 1
Representations and Warranties of
Dr. Crowder, Dr. Feldman, the MSO and Orthodontic Entity to OMEGA
Each of the Orthodontic Entity, the MSO, Dr. Crowder and Dr.
Feldman, individually, hereby represent and warrant to OMEGA and
the Subsidiary as follows; provided however, that each such
party's representations and warranties contained herein relate
only to those matters which apply to such party; and further
provided that the representations and warranties of the MSO
contained herein are made by each of Dr. Crowder and Dr. Feldman
on behalf of the MSO:
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 its business as
currently conducted and to own and lease the property it purports
to own. The copies of any articles of organization or
incorporation and by-laws 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 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. 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, Dr. Crowder and Dr.
Feldman, enforceable against the Orthodontic Entity, Dr. Crowder
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. Crowder, 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. Crowder, 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. Crowder,
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 the
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. Crowder, 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, Dr. Crowder or Dr. Feldman 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. Crowder
or 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, Dr. Crowder and Dr. Feldman
have all necessary licenses to practice orthodontics in the
State.
(b) Neither the Orthodontic Entity nor Dr. Crowder nor Dr.
Feldman is subject to any investigation, whether threatened,
current or pending, under which the Orthodontic Entity, Dr.
Crowder or Dr. Feldman may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Crowder's, Dr.
Feldman's or the Orthodontic Entity's license to practice
orthodontics and neither the Orthodontic Entity nor Dr. Crowder
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 Practice. 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 Practice 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 MSO 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 MSO, Dr. Crowder or Dr. Feldman to
issue or sell the Interests and there are no pre-emptive rights
with respect to any Interests. Drs. Crowder and Feldman together
are the beneficial and record owners of all of the Interests.
Dr. Crowder and Dr. Feldman together have 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.
(b) No entity or person other than the MSO and the
Orthodontic Entity 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 Drs. Crowder and Feldman 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, 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 of the Orthodontic Entity or the
Interests of the MSO, 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, Dr. Crowder or Dr. Feldman, threatened against or
involving the Orthodontic Entity, the MSO, Dr. Crowder or Dr.
Feldman, 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, 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, Dr. Crowder 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. Crowder, Dr. Feldman, or the Orthodontic Entity.
12. Insurance. Sharon M. Crowder, D.D.S., Inc. (the "PC")
has possessed adequate occurrence professional liability coverage
for the five (5) years prior to the date of this Agreement
protecting the PC and Dr. Crowder from any professional
malpractice liability that might arise because of the PC's or Dr.
Crowder's practice activities over the preceding five (5) years.
Prior to the Closing, the PC shall have obtained and shall
continue to maintain, at its cost, Occurrence Medical Malpractice
Liability Insurance for Dr. Crowder and the PC. The Orthodontic
Entity possesses adequate insurance coverage for its Property.
EXHIBIT X
Exceptions to Representations and
Warranties of Drs. Crowder, Feldman, the MSO and
Orthodontic Entity to OMEGA
Schedule 2
Representations and Warranties of
OMEGA to Dr. Crowder, Dr. Feldman and Orthodontic Entity
OMEGA hereby represents and warrants to the Orthodontic
Entity, Dr. Feldman and Dr. Crowder as follows:
1. Organization of OMEGA. That it and the Subsidiary are
corporations duly organized, validly existing and in good
standing under the laws of Delaware with full corporate power to
own or lease their properties and to conduct their business in
the manner and in the places where such properties are owned or
leased or such business is conducted by them.
2. Authorization of Transaction. All necessary action,
corporate or otherwise, has been taken by it and the Subsidiary
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.
EXHIBIT 2.14
2
AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT
THIS AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT is
entered into as of the ____day of _________________ 1997, by and
among Omega Orthodontics, Inc., a Delaware corporation ("OMEGA")
and Richard H. Villa, D.D.S. ("Dr. Villa"), who is duly licensed
to practice orthodontics in the Commonwealth of Virginia (the
"State") and Richard H. Villa, D.D.S., Inc., a Virginia
professional corporation (the "PC").
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
services organizations.
B. Dr. Villa owns all of the issued and outstanding shares
of the PC.
C. The PC owns and operates an orthodontic practice (the
"Orthodontic Practice") with offices located at offices located
at 10120 West Broad Street Road, Suite L, Glen Allen, Virginia
23060 (the "Orthodontic Office") and furnishes orthodontic care
to the general public. As the owner and operator of the
Orthodontic Practice, the PC is the owner of a leasehold interest
in a lease of the Orthodontic Office, the owner of certain
personal property located at the Orthodontic Office, a party to
certain contracts relating to the Orthodontic Practice and the
beneficiary of other rights related to the Orthodontic Practice.
D. OMEGA has conducted a review of the Orthodontic
Practice, and has reviewed the Orthodontic Practice's unaudited
financial statement (the "Financial Statement"), a copy of which
is attached hereto as Exhibit A . Based on its review of the
Orthodontic Practice and the Financial Statement, OMEGA has
issued the report (the "Report"), a copy of which has been
furnished to Dr. Villa. Dr. Villa has reviewed the Report and
OMEGA's literature, and agrees with the Report and the concepts
of OMEGA's Exceptional Practice.
E. Subject to the terms and conditions of this Agreement,
OMEGA, Dr. Villa and the PC have determined that it is in the
best interests of each for OMEGA to purchase from the PC certain
of the assets comprising the Orthodontic Practice as provided in
Section 1.1 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 1.
ASSET PURCHASE
a. Purchase; Consideration and Payment. At the Effective
Time (as hereinafter defined) and subject to the terms and
conditions hereinafter set forth, the PC agrees to sell,
transfer, convey, assign and deliver to OMEGA, and OMEGA agrees
to purchase and acquire from the PC and take delivery of, for the
consideration hereinafter provided, all of the PC's right, title
and interest in and to all of the assets of the Orthodontic
Practice, wheresoever situated and whether or not specifically
referred to herein or in any instrument of conveyance delivered
pursuant hereto (such assets and rights of the PC are
collectively referred to as the "Assets"), excepting therefrom
the assets listed on Schedule I to the Bill of Sale and
Assignment (the "Bill of Sale") attached hereto as Exhibit D (the
"Excluded Assets"), and including without limitation the
following Assets:
i. a lease of the Orthodontic Office, including all
rights and remedies (the "Lease");
ii. all books, records, machinery and equipment used
or owned by the Orthodontic Practice and all other tangible and
intangible personal property at or related to the Orthodontic
Office, whether or not located at the Orthodontic Office, or to
the Orthodontic Practice conducted therein, whether or not
located at the Orthodontic Office;
iii. all Contracts (as defined below in Section 2.1);
iv. all prepaid claims, prepaid taxes and other
prepaid expense items and deferred charges, credits, advance
payments, security and other deposits made by the PC to any other
person relating to Orthodontic Practice;
v. any rights of Dr. Villa or the PC pertaining to
any counterclaims, set-offs or defenses he or it may have with
respect to any of the liabilities assumed by OMEGA; and
vi. any other rights related in any way whatsoever to
the Orthodontic Practice or the Orthodontic Office;
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, for an
aggregate consideration (the "Consideration") of:
(a) Two Hundred Thousand Dollars ($200,000) in
cash (the "Cash Component");
(b) Sixty-Five Thousand Dollars ($65,000) to be
represented by a promissory note (the "Purchase Note") payable to
Dr. Villa (the "Note Component") in the form attached hereto as
Exhibit B; and
(c) One Hundred and Twenty Thousand Dollars
($120,000) to be represented by issuance to the PC of shares of
OMEGA common stock (the "OMEGA Stock") based upon a value per
share equal to 80% of the average daily closing sales price per
share of the OMEGA common stock for the five (5) trading days
ending on the Friday preceding the Closing Date which shall
thereupon be issued to the PC, fully paid and nonassessable (the
"Stock Component").
b. Adjustment; Allocation.
i. The Consideration is based on the value of the
Assets as determined by OMEGA from the information set forth in
the Financial Statement.
ii. 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 Practice which
have accrued prior to the Effective Time and which remain unpaid
as of such time (the "Accounts Payable").
iii. 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.
iv. The parties hereby agree to allocate the
Consideration among the Assets in accordance with Section 1060 of
the Internal Revenue Code of 1986, as amended, on the basis of
the fair market value of the Assets as of the Closing, which
allocation shall be reduced to writing and acknowledged by the
parties hereto within thirty (30) days following the Closing.
The parties agree to file timely any information that may be
required to be filed pursuant to regulations promulgated under
Section 1060(b) of the Code. The parties further agree that they
shall report the federal, state, municipal, foreign and local and
other tax consequences of the purchase and sale hereunder in a
manner consistent with the allocation determined pursuant to this
section, and that they shall not take any position inconsistent
therewith in connection with any tax return, refund claim,
litigation or otherwise.
c. 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 Miller & Holguin, 1801 Century Park East, Suite 700,
Los Angeles, California 90067 on ___________, 1997, or at such
other place, date or time as may be fixed by mutual agreement of
the parties.
d. Delivery of Records, Contracts; Transfer of Accounts.
At the Closing Dr. Villa and the PC shall deliver or cause to be
delivered to OMEGA:
i. All of the Assets, including without limitation,
books, records, leases, contracts, employment agreements, non-
compete agreements, commitments and rights relating to the
Orthodontic Practice, with such rights of transfer so as to allow
OMEGA of the full benefit of the same.
ii. 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 Dr. Villa (and
any successor) as a co-insured or otherwise assigning to OMEGA
and its successor the full benefits thereof.
iii. Any documentation necessary for the transfer of
any of the Assets, including the Bill of Sale, together with any
warranty or other documentation. Dr. Villa shall cooperate with
OMEGA in the transfer of any utility accounts for the Orthodontic
Office.
ARTICLE 2.
ASSUMED LIABILITIES
a. Contracts. For purposes of this Article II the term
"Contracts" shall only mean only those licenses, permits,
contracts, leases, subleases, permits, registrations,
authorizations, commitments, purchase orders, contracts to
purchase materials, contracts to perform or receive services
(including work in process) and supplies, and all other
agreements (whether written or oral) that relate to the
Orthodontic Practice and are set forth on Exhibit Y attached
hereto.
b. Transfer. At the Closing, Dr. Villa and the PC shall
assign and transfer or cause to be assigned and transferred to
OMEGA all of Dr. Villa's and the PC's right, title and interest
in and to the Contracts and OMEGA shall assume and agree to
perform all obligations and liabilities on the part of Dr. Villa
and the PC under the Contracts accruing on and after the
Effective Time; provided that to the extent that the assignment
of any Contract is not permitted without the consent of the other
party or parties to such Contract, this Agreement shall not
constitute an agreement to assign such Contract if such consent
is not given; and provided further that Dr. Villa, the PC and
OMEGA, as appropriate, shall use all reasonable efforts to obtain
such consents, it being understood that such reasonable efforts
shall not include any requirement to offer or grant financial
accommodations to any third party.
c. Assumption of Liabilities by OMEGA. At the Closing,
Dr. Villa and the PC shall assign to OMEGA, and OMEGA shall
assume and pay, perform and discharge, and indemnify and hold Dr.
Villa and the PC harmless from and against, the following
obligations and liabilities of Dr. Villa and the PC, and none
other (collectively, the "Assumed Liabilities"): (i) all
obligations and liabilities on the part of the PC under the
Contracts arising on and after the Effective Time; and (ii)
liability under that certain working capital loan advanced by Mid
Am Credit Corp., Account Number 26864 to Dr. Villa, provided that
OMEGA's obligations hereunder shall be limited to a loan balance
not to exceed $78,000 and OMEGA shall be obligated to repay such
loan only in the minimum installments and at such times as are
required pursuant to the terms of such loan.
d. No Enlargement. The assumption by OMEGA of the Assumed
Liabilities shall not enlarge any rights or remedies of any third
party under any Contract with Dr. Villa or the PC. OMEGA agrees
to indemnify, defend and hold Dr. Villa and the PC and his or its
employees, harmless from and against any and all liability, loss,
cost, damage and/or expense (including, without limitation,
reasonable attorneys' fees and costs) pertaining to the Assumed
Liabilities.
e. No Other Liabilities Assumedtc{seq level0 \c
\*arabic|00.4 No Other Liabilities Assumed". OMEGA, Dr. Villa
and the PC intend that OMEGA shall not assume or be obligated to
pay, perform or discharge any of Dr. Villa's and the PC's
obligations other than the Assumed Liabilities specified in
Section 2.3. Except for the Assumed Liabilities specified in
Section 2.3, OMEGA, Dr. Villa and the PC expressly agree OMEGA is
acquiring the Assets free and clear of all liens, claims of any
kind, encumbrances and restrictions.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Villa and the PC
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 4.
COVENANTS OF DR. VILLA AND THE PC
Dr. Villa and the PC hereby covenant and agree with OMEGA as
follows:
a. Conduct of Business. Between the date of this
Agreement and the Closing, Dr. Villa and the PC will do the
following unless OMEGA shall otherwise consent in writing:
i. conduct the PC's business only in the ordinary
course of business, and refrain from changing or introducing any
method of management or operations except in the ordinary course
of business and consistent with prior practices;
ii. 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 Assets;
iii. refrain from incurring any contingent or fixed
obligations or liabilities except those that are usual and normal
in the ordinary course of business;
iv. use their best efforts to keep available the
present employees of the PC and to preserve the goodwill of all
patients, suppliers, and others having business relations with
Dr. Villa and the PC;
v. not commit or fail to commit any act which would
cause Dr. Villa or the PC to suffer the revocation, suspension or
limitation of Dr. Villa's or the PC's license; and .
vi. permit OMEGA and its authorized representatives to
have full access to all of Dr. Villa's properties, assets,
records, tax returns, records, contracts and documents and those
of the PC and furnish to OMEGA or its authorized representatives
such financial and other information with respect to his and the
PC's business or properties as OMEGA may from time to time
reasonably request.
b. Authorization from Others. Prior to the Closing, Dr.
Villa and the PC will have obtained all assignments,
authorizations, consents and permits of others required to permit
the consummation by Dr. Villa and the PC of the transactions
contemplated by this Agreement.
c. 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, Dr. Villa and the PC shall give detailed
written notice thereof to OMEGA and shall use their best efforts
to prevent or promptly remedy the same.
d. Consummation of Agreement. Dr. Villa and the PC shall
use their best efforts to perform and fulfill all conditions and
obligations on Dr. Villa's or the PC's 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 5.
COVENANTS OF OMEGA
OMEGA hereby covenants and agrees with Dr. Villa and the PC
as follows:
a. Authorization from Others. Prior to the Closing, it
will have obtained all authorizations, consents and permits of
others required to permit the consummation by it of the
transactions contemplated by this Agreement.
b. Consummation of Agreement. It 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 6.
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 VI will have been accomplished.
a. Representations; Warranties; Covenants. Each of the
representations and warranties of Dr. Villa and the PC contained
in Schedule 1 shall be true and correct as though made on and as
of the Closing, and Dr. Villa and the PC shall have performed all
of their obligations hereunder which by the terms hereof are to
be performed on or before the Closing.
b. PC. Dr. Villa shall have furnished to OMEGA: (i) a
certificate of the State Secretary of State as to the legal
existence and good standing of the PC as a professional
corporation; and (ii) a copy of the resolutions adopted by the
board of directors and stockholders of the PC authorizing and
approving the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement.
c. Other Agreements. Dr. Villa shall have caused the PC
to execute and deliver to 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
collectively attached hereto as Exhibit E .
d. 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.
e. Notices. Dr. Villa shall, at OMEGA's expense, notify
all patients and obligors of accounts receivable, and third party
payors and others designated by OMEGA of the Asset purchase and
the other transactions contemplated hereunder pursuant to notices
substantially in the form collectively attached hereto as Exhibit
C.
f. Financial Condition. The financial condition of the
Orthodontic Practice 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 Practice, nor any material loss or
damage to the Assets, whether or not insured, which materially
affects the ability of the Orthodontic Practice to conduct its
business. Dr. Villa 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.
g. Due Diligence. OMEGA, acting in good faith and in its
sole discretion, shall be reasonably satisfied with the results
of its "Due Diligence" on the PC 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 Practice or in the
condition or prospects (financial or otherwise) of the Assets
from the information provided prior to the date hereof. As used
herein, Due Diligence shall mean, without limitation, the results
of any matters (financial or otherwise) related to, or otherwise
deemed material by OMEGA, regarding the PC and Dr. Villa,
including without limitation location of the Orthodontic Office
and its demographics, the leases, the Equipment, insurance,
licensing, malpractice issues, liabilities, compliance with laws
and regulations and health surveys.
ARTICLE 7.
CONDITIONS TO OBLIGATIONS OF DR. VILLA AND THE PC
The obligations of Dr. Villa and the PC 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 VII will have been accomplished.
a. 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 shall have performed all of its obligations
hereunder which by the terms hereof are to be performed on or
before the Closing.
b. Other Agreements. OMEGA shall have executed and
delivered to Dr. Villa and the 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
collectively attached hereto as Exhibit E.
c. 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.
Villa and the PC is likely to result in the restraint or
prohibition of the consummation of any material transaction
contemplated hereby.
ARTICLE 8.
OBLIGATIONS AFTER CLOSING
a. OMEGA Exceptional Practice and the Report Suggestions.
On and after the Closing, Dr. Villa agrees to cause the PC to
implement the suggestions in the Report and the concepts of
OMEGA's Exceptional Practice.
b. Books and Records. OMEGA shall permit Dr. Villa, his
accountants and attorneys, reasonable access to books of the PC
and records for the purpose of preparing such tax returns of Dr.
Villa as may be required after the Closing and for other proper
purposes approved by OMEGA.
c. License. Dr. Villa shall maintain all licenses
necessary to practice orthodontics in the State. Dr. Villa shall
not commit or fail to commit any act which would cause Dr. Villa
or the PC to suffer the revocation, suspension or limitation of
Dr. Villa's or the PC's license.
ARTICLE 9.
INDEMNIFICATION.
a. Indemnification By Dr. Villa and the PC. Subject to
the limitations set forth in Section 9.3, Dr. Villa and the PC
jointly and severally agree to defend, indemnify and hold OMEGA
harmless from and against any damages, liabilities, losses and
expenses (including reasonable attorneys' 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 Dr. Villa or the PC 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 its
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. Villa, the PC and its
transferees in liquidation at any time or times for recovery of
indemnification claims.
b. Indemnification By OMEGA. Subject to the limitations
set forth in Section 9.3, OMEGA agrees to defend, indemnify and
hold Dr. Villa harmless from and against any damages,
liabilities, losses and expenses (including reasonable attorneys'
fees) of any kind or nature whatsoever which may be sustained or
suffered by Dr. Villa 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.
c. Exclusions. Notwithstanding Sections 9.1 and 9.2:
i. no indemnification shall be payable to the extent
any claim is covered by insurance; and
ii. no indemnification shall be payable with respect
to claims asserted more than five (5) years after the Closing.
d. 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.
e. Payment of Claims; Alternative Dispute Resolution.
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 by Dr. Villa and the PC, or the
PC's transferees in liquidation, within 30 days after notice
thereof is given by OMEGA. In the event Dr. Villa or the PC
indicates in a writing delivered to OMEGA that he or it disputes
the nature or amount of the claim, 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 Los Angeles, California in
accordance with the commercial alternative dispute resolution
rules of said Association, with the fees and expenses thereof to
be borne 50% by OMEGA and 50% by Dr. Villa and the PC.
ARTICLE 10.
MISCELLANEOUS
a. Termination.
i. At any time prior to the Closing, this Agreement
may be terminated: (i) by mutual consent of OMEGA and the PC,
with the approval of their respective boards of directors or
members, (ii) by either OMEGA or Dr. Villa and the PC 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. Villa if the conditions
stated in Article VII have not been satisfied at or prior to the
Closing.
ii. Upon any such termination, 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.
b. 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.
c. 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.
d. 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. Villa or the PC, to:
Richard H. Villa, D.D.S.
10120 West Broad Street Road, Suite L
Glen Allen, Virginia 23060
If to 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.
e. 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 any party hereto, have
been expressed herein or therein.
f. 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.
g. 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 any 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.
h. 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.
i. 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 Practice and
is not in any way related to or dependent upon referrals by and
between OMEGA and Dr. Villa or the PC .
j. Further Assurances. Following the execution of this
Agreement, Dr. Villa and the PC, on the one hand, and OMEGA, on
the other hand, each agrees:
i. 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;
ii. 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
iii. to provide the other (or its counsel) promptly
with copies of all filings made by such party with any state or
federal governmental agency in connection with this Agreement or
the transactions contemplated hereby.
k. 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.
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.
RICHARD H. VILLA, D.D.S., INC.
By: /s/ Richard H. Villa, D.D.S.
Richard H. Villa, D.D.S.,
President
/s/ Richard H. Villa, D.D.S.
Richard H. Villa, D.D.S.
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof
Its: President and Chief
Executive Officer
Duly Authorized
Exhibit A
Financial Statement
Exhibit B
Purchase Note
Exhibit C
Notices
Exhibit D
Bill of Sale and Assignment
BILL OF SALE AND ASSIGNMENT
The undersigned, Richard H. Villa, D.D.S., Inc. (the "PC")
for good and valuable consideration the receipt of which is
hereby acknowledged, hereby sells, assigns, transfers, delivers
and conveys to OMEGA Orthodontics, Inc., a Delaware corporation,
having a usual place of business in Acton, California ("OMEGA"),
all of his right, title and interest in and to the assets of the
orthodontic practice owned and operated by the PC ("the
Orthodontic Practice") at 10120 West Broad Street Road, Suite L,
Glen Allen, Virginia 23060, wheresoever situated and whether or
not specifically referred to herein (such assets and rights of
the PC are collectively referred to as the "Assets"), excepting
therefrom the assets listed on Schedule I (the "Excluded
Assets"), attached hereto and made a part hereof, and including
without limitation, the assets listed on Schedule II and the
following assets:
(a) a lease at 10120 West Broad Street Road, Suite L, Glen
Allen, Virginia 23060, ("Orthodontic Office"); including all
rights and remedies (the Lease").
(b) all machinery and equipment ("Equipment"), books and
records used or owned by the Orthodontic Practice and all other
tangible and intangible personal property at or related to the
Orthodontic Office, whether or not located at the Orthodontic
Office, or to the Orthodontic Practice conducted therein, whether
or not located at the Orthodontic Office;
(c) all contracts, licenses, permits, registrations,
authorizations, leases, subleases, commitments, purchase orders,
contracts to purchase materials, contracts to perform or receive
services (including work in process) and supplies, and all other
agreements (whether written or oral) relating to the Orthodontic
Practice listed on the attached Exhibit Y (the "Contracts");
(d) all prepaid claims, prepaid taxes and other prepaid
expense items and deferred charges, credits, advance payments,
security and other deposits made by the PC to any other person
relating to Orthodontic Practice; .
(e) any rights of Richard H. Villa, D.D.S. ("Dr. Villa") or
the PC pertaining to any counterclaims, set-offs or defenses Dr.
Villa or the PC may have with respect to any of the liabilities
assumed by OMEGA; and
(f) any other rights related in any way whatsoever to the
Orthodontic Practice or the Orthodontic Office.
The PC represents that it has good and marketable title in
fee simple to all of the Assets, free and clear of liens and
encumbrances, restrictions or claims of any kind.. All of the
Assets are in good repair, have been well maintained,
substantially conform with all applicable ordinances, regulations
and zoning or other laws. The Equipment is in good working
order.
OMEGA assumes and agrees to pay, perform and discharge, and
indemnify and hold the PC and Dr. Villa harmless from and
against, the following obligations and liabilities of the PC and
Dr. Villa, and none other: (a) obligations and liabilities under
the Lease and the Contracts arising on and after the Effective
Time; and (b) liability under that certain working capital loan
advanced by Mid Am Credit Corp., Account Number 26864 to Dr.
Villa, provided that OMEGA's obligations hereunder shall be
limited to a loan balance not to exceed $78,000 and OMEGA shall
be obligated to repay such loan only in the minimum installments
and at such times as are required pursuant to the terms of such
loan.
The assumption by OMEGA of the Assumed Liabilities shall not
enlarge any rights or remedies of any third party under any
Contract with Dr. Villa or the PC. OMEGA agrees to indemnify,
defend and hold Dr. Villa and the PC and his or its employees,
harmless from and against any and all liability, loss, cost,
damage and/or expense (including, without limitation, reasonable
attorneys' fees and costs) pertaining to the Assumed Liabilities.
OMEGA, Dr. Villa and the PC, intend that OMEGA shall not
assume or be obligated to pay, perform or discharge any of Dr.
Villa's or the PC's obligations other than the Assumed
Liabilities. Except for the Assumed Liabilities, OMEGA, Dr.
Villa and the PC, expressly agree OMEGA is acquiring the Assets
free and clear of all liens, claims of any kind, encumbrances,
and restrictions.
This Bill of Sale and Assignment is executed and delivered
in connection with an Affiliation Agreement and asset Purchase
Agreement entered into by and between Dr. Villa and the PC, on
the one hand, and OMEGA, on the other hand, dated ____________,
1997.
WITNESS the execution under seal this _____ day of ____,
1997.
RICHARD H. VILLA, D.D.S., INC.
By:________________________________
____
Richard H. Villa, D.D.S.,
President
Schedule I
Excluded Assets
N/A
Schedule II
Included Assets
The included assets are listed and described in the following 27
page list of items located at the Orthodontic Offices.
EXHIBIT Y
List of Contracts
That certain lease by and between Donald M. Fox, DDS, as tenant
and Transcontental Realty Investors, Inc., as Landlord, dated
June 30, 1993, pertaining to the premises located in The Forum,
10120-L West Broad Street, Glen allen, Virginia 23060.
EXHIBIT E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
SCHEDULE 1
Representations and Warranties of
Dr. Villa and the PC to Omega
Richard H. Villa, D.D.S. ("Dr. Villa ") and Richard H.
Villa, D.D.S., Inc., a Virginia corporation (the "PC") hereby
represent and warrant to Omega Orthodontics, Inc., a Delaware
corporation ("OMEGA") as follows: (all capitalized terms used
herein and not otherwise defined herein shall have the respective
meanings given to such terms in the Affiliation Agreement and
Asset Purchase Agreement, entered into as of ______________,
1997, by and between Dr. Villa, the PC and OMEGA ("the
Agreement")).
1. Organization. The PC is duly organized, validly
existing and in good standing under the laws of the Commonwealth
of Virginia.
2. The Orthodontic Practice. The Assets of the
Orthodontic Practice are owned 100% by the PC. The PC has the
full power to conduct business as currently conducted by the
Orthodontic Practice and to own and lease the property it
purports to own or lease, as the case may be. All of the
outstanding stock of the PC is owned by Dr. Villa, free and clear
of all liens, claims, encumbrances or other restrictions.
3. Authorization of Transaction. All necessary action has
been taken by Dr. Villa to authorize the execution of the
Agreement by Dr. Villa and the PC, and the delivery and
performance of this Agreement and the transactions contemplated
thereby, and the Agreement is the valid and binding obligation of
Dr. Villa and the PC, enforceable against Dr. Villa and the PC in
accordance with its terms.
4. Present Compliance with Obligations and Laws. Except
as disclosed on Exhibit X attached to this Schedule, there is
not: (a) a default in the performance of any obligation,
agreement or condition of any debt instrument by Dr. Villa or the
PC 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; (b) a default of or
breach of (with or without the passage of time or the giving of
notice) any other contract to which Dr. Villa or the PC is a
party or by which the PC's assets are bound; or (d) any violation
of any law, regulation, administrative order or judicial order
applicable to Dr. Villa, or his or the PC's business or assets.
5. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of
the Agreement, nor the performance of the transactions
contemplated thereby, will: (i) 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. Villa or
the PC is a party, or give any person the right to accelerate any
indebtedness or terminate any right; (ii) 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 Dr. Villa or the PC is a party or by which the PC's assets
are bound; or (iv) result in a violation of any law, regulation,
administrative order or judicial order applicable to Dr. Villa or
the PC, or either of 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 Dr. Villa
and the PC do not require the consent, waiver, approval,
authorization, exemption of or giving of notice to any
governmental authority.
6. Investigations and Licenses.
(a) Dr. Villa and the PC have all necessary licenses
to practice orthodontics in the State.
(b) Neither Dr. Villa nor the PC is subject to any
investigation, whether threatened, current or pending, under
which Dr. Villa or the PC may be required to forfeit or suffer
the revocation, suspension or limitation of Dr. Villa's license
to practice orthodontics and Dr. Villa is not subject to any
investigation, whether threatened, current or pending by a
commercial third-party payor.
7. Financial Statement. Attached as Exhibit A to the
Agreement is the Financial Statement of the Orthodontic Practice.
To the best knowledge of Dr. Villa and the PC, the Financial
Statement is complete and correct and fairly presents in all
material respects the financial position of the Orthodontic
Practice 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.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule,
the PC has good and marketable title in fee simple to all of the
Assets, including without limitation, all real and personal
property, machinery and equipment used or owned by the
Orthodontic Practice (the "Equipment"), free and clear of liens,
encumbrances, restrictions or claims of any kind (the
"Property"). All the Property owned or leased by the PC 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 person owns any of the assets necessary
for the operation of the Orthodontic Practice. The Orthodontic
Practice does not operate any of its practice through any other
entities or persons.
9. Payment of Taxes. Dr. Villa and the PC have 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 Assets purchased pursuant to the
Agreement shall be paid or provided for by Dr. Villa and the PC
after the Closing out of the Consideration to be received upon
consummation of the Agreement.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, neither
Dr. Villa nor the PC had any 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) relating to the Orthodontic Practice,
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, 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
Practice which has not been specifically disclosed in the
Financial Statement 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 PC
or the Orthodontic Practice, 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 PC or the Orthodontic Practice;
(ii) any mortgage, encumbrance or lien placed on
any of the Property, or the property subject to any lease, or
which remains in existence on the date hereof or will remain in
existence at the time of Closing; or
(iii) any obligation or liability incurred by
Dr. Villa or the PC relating to the Orthodontic Practice 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 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 Dr. Villa, threatened against or
involving Dr. Villa, the PC or the Orthodontic Practice, 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 Practice, the PC or Dr. Villa is a party
which question the Agreement or affect the transactions
contemplated thereby, 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. Villa, the PC or the Orthodontic Practice.
12. Insurance. Dr. Villa and the PC have possessed
adequate occurrence professional liability coverage for the five
(5) years prior to the date of the Agreement protecting the
Orthodontic Practice, the PC and Dr. Villa from any professional
malpractice liability that might arise because of the Orthodontic
Practice's, the PC's or Dr. Villa's practice activities over the
preceding five (5) years. Prior to the Closing, the PC shall
have obtained and shall continue to maintain, at its cost,
Occurrence Medical Malpractice Liability Insurance for Dr. Villa
and the PC. The Orthodontic Practice possesses adequate
insurance coverage for its Property.
EXHIBIT X
Exceptions to Representations and
Warranties of Dr.Villa, the PCc and
Orthodontic Practice to Omega
N/A
SCHEDULE 2
Representations and Warranties of
Omega to Dr. Villa and the PC
Omega Orthodontics, Inc., ("OMEGA") hereby represents and
warrants to Richard H. Villa, D.D.S. ("Dr. Villa") and Richard H.
Villa, D.D.S., Inc., a Virginia professional corporation (the
PC") 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 the Affiliation Agreement
and Asset Purchase Agreement, entered into as of ___________,
1997, by and between OMEGA, Dr. Villa, and the PC (the
"Agreement"), and the 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 the
Agreement.
EXHIBIT 2.15
AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
is entered into as of the 21st day of January, 1998, by and among
Omega Orthodontics of Woodland Hills, Inc., a Delaware
corporation ("Subsidiary" or "Surviving Entity"), Omega
Orthodontics, Inc., a Delaware corporation ("OMEGA"), Azani
Dental Services, Inc., a Delaware corporation (the "MSO"), Daniel
Azani, D.D.S. ("Dr. Azani") who is duly licensed to practice
orthodontics in the State of California (the "State") and Daniel
Azani, D.D.S., Inc., a California professional dental corporation
(the "Orthodontic Entity").
RECITALS
A. OMEGA and its subsidiaries, including the Subsidiary,
provide 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 MSO provides management services to the Orthodontic
Entity, which owns and operates an orthodontic practice (the
"Practice") with offices located at 18411 Clark Street, Suite
200, Tarzana, California 91356 (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the
services of Dr. Azani affiliated with the Orthodontic Entity.
C. Dr. Azani presently holds 100% of the issued and
outstanding capital stock of the MSO (the issued and outstanding
capital stock is hereafter referred to herein as the "Interests")
and 100% of the issued and outstanding capital stock of the
Orthodontic Entity.
D. OMEGA has conducted a review of the Orthodontic
Entity, and has reviewed the Orthodontic Entity's unaudited
financial and operations statement provided by Dr. Azani (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. Azani have reviewed the
Report and OMEGA's literature, and agree with the Report and the
concepts of OMEGA's Exceptional Practice.
E. Subject to the terms and conditions of this Agreement,
OMEGA and Dr. Azani have determined that it is in the best
interests of each to effect a merger of the MSO with and into the
Subsidiary (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
MERGER
I.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 the Subsidiary will be the surviving
entity.
(b) At the Effective Time, the Interests of the MSO
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) Ten Thousand Dollars ($10,000) in cash (the
"Cash Component");
(ii) One Hundred Thousand Dollars ($100,000) to be
represented by issuance to Dr. Azani of shares of OMEGA common
stock ("OMEGA Stock") based on a value per share equal to the
average daily closing sales price per share of OMEGA common stock
on the NASDAQ Small Cap Market for each business day (Monday
through Friday, not including legal holidays) of the calendar
week ending on the Friday immediately preceding the date of
Closing (as hereinafter defined) rounded down to the nearest
whole number of shares (the "Stock Component"), which shall
thereupon be issued to Dr. Azani, fully paid and nonassessable.
I.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 any 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").
(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.
I.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 Rosenthal and Smith, 6345 Balboa Blvd., Suite 330,
Encino, California 91316-1524 on January 21, 1998, or at such
other place, date or time as may be fixed by mutual agreement of
the parties.
I.4 Filing Certificate of Merger. Contemporaneous with the
Closing, a duly executed Certificate(s) of Merger shall be filed
with the Delaware Secretary of State and the State Secretary of
State (if required).
I.5 Delivery of Records, Contracts, Interests. At the
Closing Dr. Azani shall deliver or cause to be delivered to the
Subsidiary:
(a) All of the MSO's minute books, stock records and
other company books and records and the MSO's leases, contracts,
employment agreements, non-compete agreements, commitments and
rights, with such consents to the Merger as are necessary to
assure the Subsidiary of the full benefit of the same.
(b) Evidence of malpractice insurance coverage for Dr.
Azani for the current and five (5) prior years.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Azani, the MSO 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 the Subsidiary 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 III
COVENANTS OF DR. AZANI, THE MSO
AND THE ORTHODONTIC ENTITY
Dr. Azani, the MSO and the Orthodontic Entity hereby
covenant and agree with OMEGA and the Subsidiary as follows:
III.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 the business of the Orthodontic Entity and
the MSO 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 or the MSO;
(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 the Charter or By-laws of the
Orthodontic Entity or the MSO (certified copies of which are
attached hereto as Exhibit C and Exhibit F, respectively)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 or the MSO;
(f) use their best efforts to keep intact their
respective business organizations, to keep available their
present agents and employees and to preserve the goodwill of all
patients, suppliers, and others having business relations with
them;
(g) not commit or fail to commit any act which would
cause Dr. Azani or the Orthodontic Entity to suffer the
revocation, suspension or limitation of Dr. Azani's or the
Orthodontic Entity's license; and
(h) permit OMEGA and its authorized representatives to
have full access to all their 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 their business or properties as OMEGA
may from time to time reasonably request.
III.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.
Azani, the MSO and the Orthodontic Entity of the transactions
contemplated by this Agreement.
III.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.
III.4 Consummation of Agreement. Each shall use his,
her or its best efforts to perform and fulfill all conditions and
obligations on his, her 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 IV
COVENANTS OF OMEGA
AND THE SUBSIDIARY
OMEGA and the Subsidiary each hereby covenants and agrees
with Dr. Azani and the Orthodontic Entity as follows:
IV.1 Authorization from Others. Prior to the Closing, OMEGA
will have obtained and will have caused the Subsidiary to have
obtained all authorizations, consents and permits of others
required to permit the consummation by it and the Subsidiary of
the transactions contemplated by this Agreement.
IV.2 Consummation of Agreement. OMEGA and the Subsidiary
shall use their best efforts to perform and fulfill all
conditions and obligations on their respective parts to be
performed or fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be fully
carried out.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF OMEGA AND THE SUBSIDIARY
The obligations of OMEGA and the Subsidiary 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 V will have been accomplished.
V.1 Representations; Warranties; Covenants. (i) Each of
the representations and warranties of the Orthodontic Entity, the
MSO and Dr. Azani contained in Schedule 1 shall be true and
correct as though made on and as of the Closing, (ii) Dr. Azani,
the MSO and the Orthodontic Entity shall have performed all of
their, his or its obligations hereunder which by the terms hereof
are to be performed on or before the Closing, and (iii) Dr.
Azani, the MSO and the Orthodontic Entity shall have delivered to
OMEGA a certificate, dated the date of Closing, to such effect,
in form and substance satisfactory to OMEGA.
V.2 Orthodontic Entity. Dr. Azani shall have furnished:
(i) a certificate of the State Secretary of State as to the legal
existence and professional corporation good standing of the
Orthodontic Entity and the Delaware Secretary of State as to the
legal existence and good standing of the MSO; and (ii) a copy of
the resolutions adopted by the board of directors and
stockholders of the Orthodontic Entity and the MSO, in each case
authorizing and approving this Agreement, the Management Services
Agreement and the Stock Put/Call Option and Successor Designation
Agreement.
V.3 Other Agreements. Dr. Azani shall have executed and
delivered, and shall have caused the Orthodontic Entity and the
MSO to execute and deliver, to 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 collectively attached hereto as Exhibit D .
V.4 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.
V.5 Notices. The Orthodontic Entity shall, at OMEGA's
expense, notify all of its 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 B.
V.6 Financial Condition. The financial condition of the
Orthodontic Entity and the MSO 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 or the MSO, nor any material
loss or damage to their respective assets, whether or not
insured, which materially affects the ability of the Orthodontic
Entity or the MSO to conduct its business. The Orthodontic
Entity and the MSO 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 were incurred since the date of the Financial Statement in
the ordinary course of business.
V.7 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. Azani, the Orthodontic Entity and
the MSO 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 the MSO 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 or the MSO 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. Azani, the MSO 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 VI
CONDITIONS TO OBLIGATIONS OF THE
MSO, ORTHODONTIC ENTITY AND DR. AZANI
The obligations of the Orthodontic Entity, the MSO and Dr.
Azani 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 VI will
have been accomplished.
VI.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 and the Subsidiary shall have performed all of their
obligations hereunder which by the terms hereof are to be
performed on or before the Closing.
VI.2 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.
Azani is likely to result in the restraint or prohibition of the
consummation of any material transaction contemplated hereby.
ARTICLE VII
OBLIGATIONS AFTER CLOSING
VII.1 OMEGA Exceptional Practice and the Report
Suggestions. On and after the Closing, Dr. Azani agrees to cause
the Orthodontic Entity to implement the suggestions in the Report
and the concepts of OMEGA's Exceptional Practice.
VII.2 Books and Records. OMEGA shall permit Dr. Azani,
his accountants and attorneys, reasonable access to books and
records of the Orthodontic Entity for the purpose of preparing
such tax returns of Dr. Azani as may be required after the
Closing and for other proper purposes approved by OMEGA.
VII.3 License. Dr. Azani shall maintain all licenses
necessary to practice orthodontics in the State. Dr. Azani shall
not commit or fail to commit any act which would cause Dr. Azani
or the Orthodontic Entity to suffer the revocation, suspension or
limitation of Dr. Azani's or the Orthodontic Entity's license.
ARTICLE VIII
INDEMNIFICATION
VIII.1 Indemnification By Dr. Azani. Subject to the
limitations set forth in Section 8.3, Dr. Azani agrees to defend,
indemnify and hold OMEGA and the Subsidiary 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 the Subsidiary based
upon a breach of any representation, warranty or covenant made by
the Orthodontic Entity, the MSO or Dr. Azani 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.
VIII.2 Indemnification By OMEGA. Subject to the
limitations set forth in Section 8.3, OMEGA agrees to defend,
indemnify and hold Dr. Azani 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. Azani based upon a breach of any
representation, warranty or covenant made by OMEGA or the
Subidiary 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.
VIII.3 Exclusions. Notwithstanding Sections 8.1 and 8.2:
(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.
VIII.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.
VIII.5 Payment of Claims; Alternative Dispute Resolution.
(a) Indemnification claims by OMEGA or the Subsidiary
shall be paid or otherwise satisfied by Dr. Azani within 30 days
after notice thereof is given by OMEGA or the Subsidiary,
respectively. In the event Dr. Azani indicates in a writing
delivered to OMEGA or the Subsidiary that he disputes the nature
or amount of the claim, the dispute shall, upon the election of
any party hereto after said 30-day period, be settled in
accordance with Section 8.5(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 8.5, 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 8.5 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 IX
MISCELLANEOUS
IX.1 Termination. 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 any party if there has been a material
misrepresentation, breach of warranty or breach of covenant by
another party in its representations, warranties and covenants
set forth herein, (iii) by OMEGA if the conditions stated in
Article V have not been satisfied at or prior to the Closing, or
(iv) by Dr. Azani if the conditions stated in Article VI have not
been satisfied at or prior to the Closing.
IX.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 any party to another 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 any party
hereto.
IX.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.
IX.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. Azani, the MSO or the Orthodontic Entity, to:
Daniel Azani, D.D.S.
18411 Clark Street, Suite 200
Tarzana, California 91356
If to OMEGA or Subsidiary, 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.
IX.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 Letter of Intent, 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 any
party hereto, have been expressed herein or therein.
IX.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; provided, however, that
OMEGA shall be permitted to assign its rights and obligations
hereunder without the consent of the other parties hereto to any
person, firm or corporation controlled by OMEGA, controlling
OMEGA or under common control with OMEGA.
IX.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, counsel 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.
IX.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.
IX.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 MSO and is not in any way
related to or dependent upon referrals by and among OMEGA, the
Orthodontic Entity, the Subsidiary and Dr. Azani.
IX.10 Further Assurances. Following the execution of
this Agreement, Dr. Azani, the Orthodontic Entity, OMEGA and the
Subsidiary each agree:
(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.
IX.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.
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.
OMEGA ORTHODONTICS OF
WOODLAND HILLS, INC.
By /s/ Robert J. Schulhof
Robert J. Schulhof, Its President
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof
Its President and Chief Executive
Officer
Duly Authorized
AZANI DENTAL SERVICES, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof, Its President
Duly Authorized
DANIEL AZANI, D.D.S, INC.
By: /s/ Daniel Azani, D.D.S.
Daniel Azani, D.D.S., Its President
Duly Authorized
/s/ Daniel Azani, D.D.S.
Daniel Azani, D.D.S.
Exhibit A
Financial Statement
Exhibit B
Notices
Exhibit C
Orthodontic Entity's Charter and
By-Laws
Exhibit D
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
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 with
the assistance of the American Arbitration Association, unless
the parties agree otherwise in finding a mutually acceptable
mediator.
5. Each party to a dispute shall bear an equal share of
the fees and costs of the mediator and any fees and costs of the
American Arbitration Association.
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 American Arbitration Association.
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 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 Los Angeles,
California before a qualified sole arbitrator in accordance with
the then current commercial arbitration rules of the American
Arbitration Association. 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 American Arbitration Association. 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 F
MSO's Charter and By-Laws
Schedule 1
Representations and Warranties of
Dr. Azani, the MSO and the Orthodontic Entity to OMEGA
and the Subsidiary
Each of Daniel Azani, D.D.S., Inc., a California
professional dental corporation (the "Orthodontic Entity"), Azani
Dental Services, Inc., a Deleware corporation (the "MSO") and
Daniel Azani, D.D.S. ("Dr. Azani") hereby represent and warrant
to Omega Orthodontics, Inc., a Delaware corporation ("OMEGA") and
Omega Orthodontics of Woodland Hills, Inc., a Delaware
corporation (the "Subsidiary") as follows (all capitalized terms
used in this Schedule and not otherwise defined in this Schedule
shall have the respective meanings given to such terms in the
Affiliation Agreement and Agreement and Plan of Merger, entered
into as of January 21, 1998, by and among the Subsidiary, OMEGA,
the MSO, Dr. Azani and the the Orthodontic Entity (the
"Agreement")):
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 or lease, as the case may
be. 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 "Orthodontic Entity's Charter and By-Laws"),
certified by Dr. Azani and attached to the Agreement as Exhibit C
are complete and correct.
2. Organization of the MSO. The MSO 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. The copies of any articles of organization
or incorporation and by-laws of the MSO which are currently in
effect, and all amendments thereto (collectively, the "MSO's
Charter and By-Laws" and, together with the Orthodontic Entity's
Charter and By-Laws, the "Charter and By-Laws"), certified by Dr.
Azani and attached to the Agreement as Exhibit F are complete and
correct.
3. Authorization of Transaction. All necessary action,
corporate or otherwise, has been taken by the Orthodontic Entity
and the MSO to authorize the execution of the Agreement by Dr.
Azani on behalf of the Orthodontic Entity and the MSO,
respectively, and the delivery and performance of the Agreement
and the transactions contemplated thereby, and the Agreement is
the valid and binding obligation of the Orthodontic Entity, Dr.
Azani and the MSO enforceable against each of the Orthodontic
Entity, Dr. Azani and the MSO in accordance with its terms.
4. 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. Azani, the Orthodontic Entity or
the MSO 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. Azani, the Orthodontic
Entity or the MSO 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. Azani, the Orthodontic Entity
or the MSO, or any of their business or assets.
5. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of
the Agreement, nor the performance of the transactions
contemplated thereby, will: (i) constitute a breach or violation
of the Orthodontic Entity's or the MSO'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. Azani, the Orthodontic Entity or the MSO
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, Dr. Azani or the MSO is a party or
by which any of 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. Azani or
the MSO, or any of their business or assets.
(b) Except as disclosed on the attached Exhibit X to
this Schedule, the execution, delivery and performance of the
Agreement and the transactions contemplated thereby by the
Orthodontic Entity, Dr. Azani or the MSO do not require the
consent, waiver, approval, authorization, exemption of or giving
of notice to any governmental authority or other third party.
6. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Azani have all
necessary licenses to practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Azani is
subject to any investigation, whether threatened, current or
pending, under which the Orthodontic Entity or Dr. Azani may be
required to forfeit or suffer the revocation, suspension or
limitation of Dr. Azani's or the Orthodontic Entity's license to
practice orthodontics and neither the Orthodontic Entity nor Dr.
Azani is subject to any investigation, whether threatened,
current or pending, by a commercial third-party payor.
7. Financial Statement. Attached as Exhibit A to the
Agreement is the Financial Statement of the Orthodontic Entity.
To the best knowledge of Dr. Azani and the Orthodontic Entity,
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.
8. Capitalization and the Interests. The authorized
capital of the MSO 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. Azani to issue or sell the Interests and there are no pre-
emptive rights with respect to any Interests. Dr. Azani is the
beneficial and record owner of all of the Interests. Dr. Azani
has good and marketable title to the Interests, free and clear of
any liens, encumbrances, restrictions, or claims of any kind.
The Interests are not subject to any voting or similar agreement.
9. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule,
the Orthodontic Entity and the MSO have good and marketable title
in fee simple to all of their owned real and personal property,
including without limitation, all machinery and equipment used or
owned by the Orthodontic Entity, and all machinery and equipment
owned by the MSO and used by the Orthodontic Entity (the
"Equipment") free of liens, encumbrances, restrictions or claims
of any kind (the "Property"). All the Property owned or leased
by the Orthodontic Entity and the MSO is in good repair, has
been well maintained, and substantially conforms with all
applicable ordinances, regulations and zoning or other laws. The
Equipment is in good working order.
(b) No entity or person other than the MSO and the
Orthodontic Entity 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.
10. Payment of Taxes. The Orthodontic Entity and the MSO
have 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 have 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 Dr.
Azani after the Closing out of the Consideration to be received
upon consummation of the Merger.
11. 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, and (ii)
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 or the MSO which has not been specifically
disclosed in the Financial Statement 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 or the MSO, 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 or the MSO;
(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
(iii) any obligation or
liability incurred by the Orthodontic Entity
or the MSO other than obligations and
liabilities not in excess of $5,000 incurred
in the ordinary course of business.
(c) Except as described in Exhibit X to this Schedule,
there are no accounts payable of the Orthodontic Entity (not
including payroll, "Accounts Payable") that accrued prior to the
commencement date of the Agreement), and which were unpaid as of
such date. Said Exhibit X further sets forth the Accounts
Payable of the Orthodontic Entity for the last 12 months prior to
the end of the month immediately preceding the commencement date
of the Agreement.
12. Litigation. Except for matters described on Exhibit X
to this Schedule, there is no action, suit, claim, proceeding,
investigation or governmental inquiryat law or in equity, or
before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality
pending or, to the knowledge of the Orthodontic Entity, the MSO
or Dr. Azani, threatened against or involving the Orthodontic
Entity, the MSO, or Dr. Azani 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,
the MSO, or Dr. Azani is a party which question the Agreement or
affect the transactions contemplated thereby, 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. Azani, the MSO or the Orthodontic
Entity.
13. Insurance. Dr. Azani and The Orthodontic Entity have
possessed adequate occurrence professional liability coverage for
the five (5) years prior to the date of the Agreement protecting
the Orthodontic Entity and Dr. Azani from any professional
malpractice liability that might arise because of the Orthodontic
Entity's or Dr. Azani's practice activities over the preceding
five (5) years. Prior to the Closing, the Orthodontic Entity
shall have obtained and shall continue to maintain, at its cost,
Occurrence Medical Malpractice Liability Insurance for Dr. Azani
and the Orthodontic Entity. The Orthodontic Entity and the MSO
possess adequate insurance coverage for their Property.
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Azani and
Orthodontic Entity to OMEGA and Subsidiary
Schedule 2
Representations and Warranties of
OMEGA to Dr. Azani, the MSO and the Orthodontic Entity
Omega Orthodontics, Inc., a Delaware corporation ("OMEGA")
hereby represents and warrants to Azani Dental Services, Inc., a
Delaware corporation ("the MSO"), Daniel Azani, D.D.S., Inc., a
California professional dental corporation (the "Orthodontic
Entity") and Daniel Azani, D.D.S. "(Dr. Azani") as follows:
1. Organization of OMEGA. That it and Omega Orthodontics
of Woodland Hills, Inc., a Delaware corporation (the
"Subsidiary") are corporations duly organized, validly existing
and in good standing under the laws of Delaware with full
corporate power to own or lease their properties and to conduct
their business in the manner and in the places where such
properties are owned or leased or such business is conducted by
them.
2. Authorization of Transaction. All necessary action,
corporate or otherwise, has been taken by it and the Subsidiary
to authorize the execution, delivery and performance of the
Affiliation Agreement and Agreement and Plan of Merger, entered
into as of January 21, 1998, by and among OMEGA, the Orthodontic
Entity, the Subsidiary, the MSO and Dr. Azani (the "Agreement"),
and the Agreement is a valid and binding obligation of it and the
Subsidiary enforceable against them in accordance with its terms.
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 the
Agreement.
Exhibit 2.15a
BOST1-637123-2
AMENDMENT TO
AFFILIATION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT (the "Amendment Agreement") to an AFFILIATION
AGREEMENT AND AGREEMENT AND PLAN OF MERGER, dated January 17,
1998 (the "Affiliation Agreement") is entered into as of the 19th
day of January, 1998, by and among Omega Orthodontics of Woodland
Hills, Inc., a Delaware corporation ("Subsidiary" or "Surviving
Entity"), Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"), Azani Dental Services, Inc., a Delaware corporation
(the "MSO"), Daniel Azani, D.D.S. ("Dr. Azani") who is duly
licensed to practice orthodontics in the State of California (the
"State") and Daniel Azani, D.D.S., Inc., a California
professional dental corporation (the "Orthodontic Entity").
RECITALS
A. The parties hereto have entered into the Affiliation
Agreement.
B. The parties hereto wish to make certain amendments to
the Affiliation Agreement in order to taken into account certain
additional value of the MSO attributable to a practice conducted
by the Orthodontic Entity at its location at 33342 Santiago Road,
Acton, California 93510.
C. A written amendment to the Affiliation Agreement is
necessary to effect such amendments.
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 to amend the Affiliation
Agreement as follows:
1. Recitals. Paragraph B of the Recitals shall be amended
and restated to provide as follows:
"B. The MSO provides management services to the Orthodontic
Entity, which owns and operates an orthodontic practice (the
"Practice") in Tarzana and Encino (the "Valley Practice") with
offices located at 18411 Clark Street, Suite 200, Tarzana,
California 91356 (which offices are being moved to 5400 Balboa
Blvd., Suite 321, Encino California 91316-1502) (the "Valley
Office") and in Acton (the "Acton Practice") with offices located
at 33342 Santiago Road, Acton, California 93510 (the "Desert
Office") (the Valley Office and the Desert Office together being
referred to herein as the "Orthodontic Offices") and furnishes
orthodontic care to the general public through the services of
Dr. Azani affiliated with the Orthodontic Entity."
2. Merger Consideration. Article I shall be amended and
restated to provide as follows:
"ARTICLE 1.
MERGER
1.1 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
re Secretary
of State and the State Secretary of State (if required) (the
"Effective Time"), and the Subsidiary will be the surviving
entity.
(b) At the Effective Time, the Interests of the MSO
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) Sixty Thousand Two Hundred and Eighty Six Dollars
($60,286) in cash (the "Cash Component");
(ii) Thirty Thousand Dollars ($30,000) to be
represented by a promissory note (the "Purchase Note") payable to
Dr. Azani (the "Note Component") in the form attached hereto as
Exhibit A-1; and
(iii) One Hundred Thousand Dollars ($100,000) to be
represented by issuance to Dr. Azani of shares of OMEGA common
stock ("OMEGA Stock") based on a value per share equal to the
average daily closing sales price per share of OMEGA common stock
on the NASDAQ Small Cap Market for each business day (Monday
through Friday, not including legal holidays) of the calendar
week ending on the Friday immediately preceding the date of
Closing (as hereinafter defined) rounded down to the nearest
whole number of shares (the "Stock Component"), which shall
thereupon be issued to Dr. Azani, fully paid and nonassessable.
1.2 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 any 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").
(c) The Consideration shall also be subject to an
adjustment on March 1, 1999, to take into account the revaluation
of the Acton Practice. The parties hereto acknowledge that the
value of the Acton Practice as of the date hereof is Eighty
Thousand Two Hundred Eighty Six Dollars ($80,286). The adjusted
value of the Acton Practice shall be equal to One Hundred and
Twenty Percent (120%) of the numerical average of (i) collected
revenue of the Acton Practice for the preceding twelve calendar
months, and (ii) production of the Acton Practice for the
preceding twelve calendar months. For purposes of this
subsection (c) "collected revenue" shall mean gross collections
of all revenues generated by or on behalf of the PC at the Desert
Office, including, but not limited to, all fees and charges
collected as a result of professional orthodontic services
furnished to patients by the PC at the Desert Office and for any
other goods or services sold or provided to such patients, net of
any refunds. For purposes of this subsection (c) "production"
shall mean the sum of all new contracts entered into during the
preceding twelve months, plus all one time fees and charges
collected as a result of professional orthodontic services
furnished to patients by the PC at the Desert Office, plus any
net adjustments to such amounts during such period.
(d) The adjustments provided in subsection (b) hereof
to the Consideration payable hereunder, shall be applied in the
following order of priority; first to the Cash Component, and the
balance, if any, to the Stock Component. If the adjustment
provided in subsection (c) hereof to the Consideration payable
hereunder results in a decrease in the Consideration payable
hereunder, such adjustment shall be made by means of a reduction
in the principal amount of the Note Consideration (the "Note
Reduction") with the balance, if any, applied to the Cash
Component and then to the Stock Component. Any such reduction
shall be retroactive to the date of the Purchase Note. Any
excess interest payments due to such retroactive reduction in the
principal amount of the Purchase Note shall be credited against
the principal amount of the Purchase Note and shall be deemed to
reduce the outstanding balance as of the date of payment. If the
adjustment provided in subsection (c) hereof to the Consideration
payable hereunder, results in an increase in the Consideration
payable hereunder, such adjustment shall be made as follows: The
first Nine Thousand Dollars ($9,000) of any such adjustment shall
be payable to Dr. Azani in cash, without interest. Any increase
in excess of Nine Thousand Dollars ($9,000) would be paid, Forty
Nine Percent (49%) in the form of cash, without interest, and
Fifty One Percent (51%) by the issuance of shares of OMEGA common
stock, based on a value per share equal to the average daily
closing sales price per share of OMEGA common stock on the NASDAQ
Small Cap Market for each business day (Monday through Friday,
not including legal holidays) of the calendar week ending on the
Friday immediately preceding March 1, 1999, rounded down to the
nearest whole number of shares, which shall thereupon be issued
to Dr. Azani, fully paid and nonassessable.
1.3 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 Rosenthal and Smith, 6345 Balboa Blvd., Suite 330,
Encino, California 91316-1524 on January 21, 1998, or at such
other place, date or time as may be fixed by mutual agreement of
the parties.
1.4 Filing Certificate of Merger. Contemporaneous with the
Closing, a duly executed Certificate(s) of Merger shall be filed
with the Delaware Secretary of State and the State Secretary of
State (if required).
1.5 Delivery of Records, Contracts, Interests. At the
Closing Dr. Azani shall deliver or cause to be delivered to the
Subsidiary:
(a) All of the MSO's minute books, stock records and
other company books and records and the MSO's leases, contracts,
employment agreements, non-compete agreements, commitments and
rights, with such consents to the Merger as are necessary to
assure the Subsidiary of the full benefit of the same.
(b) Evidence of malpractice insurance coverage for Dr.
Azani for the current and five (5) prior years."
3. Exhibit A-1. The Affiliation Agreement shall be
amended by the addition of Exhibit A-1 in the form attached
hereto.
4. Ratification of Other Provisions of Affiliation
Agreement. Except as provided herein, all other provisions,
terms and conditions of the Affiliation Agreement are hereby
ratified and confirmed.
IN WITNESS WHEREOF the parties hereto have caused this
Amendment Agreement to be executed as of the date set forth above
by their duly authorized representatives.
OMEGA ORTHODONTICS OF
WOODLAND HILLS, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof, Its President
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof
Its President and Chief Executive
Officer
Duly Authorized
AZANI DENTAL SERVICES, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof, Its President
Duly Authorized
DANIEL AZANI, D.D.S, INC.
By: /s/ Daniel Azani, D.D.S
Daniel Azani, D.D.S., Its President
Duly Authorized
Daniel Azani, D.D.S.
Daniel Azani, D.D.S.
EXHIBIT 2.16
AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT
THIS AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT is
entered into as of the 16th day of January, 1998, by and among
Omega Orthodontics, Inc., a Delaware corporation ("OMEGA") and
William W. Beazley, D.D.S. ("Dr. Beazley"), who is duly licensed
to practice orthodontics in the State of California (the "State")
and William W. Beazley, D.D.S., Inc., a California professional
corporation (the "PC").
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
services organizations.
B. Dr. Beazley owns all of the issued and outstanding
shares of the PC.
C. The PC owns and operates an orthodontic practice (the
"Orthodontic Practice") with offices located at offices located
at 5400 Balboa Boulevard, Suite 321, Encino, California 91315-
1596 (the "Orthodontic Office") and furnishes orthodontic care to
the general public. As the owner and operator of the Orthodontic
Practice, the PC is the owner of a leasehold interest in a lease
of the Orthodontic Office, the owner of certain personal
property located at the Orthodontic Office, a party to certain
contracts relating to the Orthodontic Practice and the
beneficiary of other rights related to the Orthodontic Practice.
D. OMEGA has conducted a review of the Orthodontic
Practice, and has reviewed the Orthodontic Practice's unaudited
financial statement (the "Financial Statement"), a copy of which
is attached hereto as Exhibit A . Based on its review of the
Orthodontic Practice and the Financial Statement, OMEGA has
issued the report (the "Report"), a copy of which has been
furnished to Dr. Beazley. Dr. Beazley has reviewed the Report
and OMEGA's literature, and agrees with the Report and the
concepts of OMEGA's Exceptional Practice.
E. Subject to the terms and conditions of this Agreement,
OMEGA, Dr. Beazley and the PC have determined that it is in the
best interests of each for OMEGA to purchase from the PC certain
of the assets comprising the Orthodontic Practice as provided in
Section 1.1 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 1.
ASSET PURCHASE
a. Purchase; Consideration and Payment. At the Effective
Time (as hereinafter defined) and subject to the terms and
conditions hereinafter set forth, the PC agrees to sell,
transfer, convey, assign and deliver to OMEGA, and OMEGA agrees
to purchase and acquire from the PC and take delivery of, for the
consideration hereinafter provided, all of the PC's right, title
and interest in and to all of the assets of the Orthodontic
Practice, wheresoever situated and whether or not specifically
referred to herein or in any instrument of conveyance delivered
pursuant hereto, including the assets listed on Schedule II to
the Bill of Sale and Assignment (the "Bill of Sale") attached
hereto as Exhibit D (such assets and rights of the PC are
collectively referred to as the "Assets"), excepting therefrom
the assets listed on Schedule I to the Bill of Sale (the
"Excluded Assets"), and including without limitation the
following Assets:
i. a lease of the Orthodontic Office, including all
rights and remedies (the "Lease");
ii. all books, records, machinery and equipment used
or owned by the Orthodontic Practice and all other tangible and
intangible personal property at or related to the Orthodontic
Office, whether or not located at the Orthodontic Office, or to
the Orthodontic Practice conducted therein, whether or not
located at the Orthodontic Office;
iii. all Contracts (as defined below in Section 2.1);
iv. all prepaid claims, prepaid taxes and other
prepaid expense items and deferred charges, credits, advance
payments, security and other deposits made by the PC to any other
person relating to the Orthodontic Practice;
v. all Accounts Receivable of the PC on the close of
business on the Closing Date and the PC's right to reimbursement
for all professional services provided to managed care and fee-
for-services patients. "Accounts Receivable" shall include all
rights to payment for goods or services rendered, and all other
obligations and receivables from others, no matter how evidenced
relating to the Practice, including purchase orders, notes,
instruments, drafts and acceptances and all guarantees of the
foregoing, and security therefor, relating to the Practice; and
vi. any rights of Dr. Beazley or the PC pertaining to
any counterclaims, set-offs or defenses he or it may have with
respect to any of the liabilities assumed by OMEGA;
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, for an
aggregate consideration (the "Consideration") of:
(1) One Million Dollars ($1,000,000) in cash or
cash equivalents (the "Cash Component");
(2) Four Hundred and Sixty Thousand Dollars
($460,000) to be represented by issuance to the PC of shares of
OMEGA common stock (the "OMEGA Stock") based upon a value per
share equal to the average daily closing sales price per share of
the OMEGA common stock on the NASDAQ SmallCap Market for each
business day (Monday through Friday, not including legal
holidays) of the calendar week ending on the Friday immediately
preceding the Closing Date, rounded down to the nearest whole
number of shares, which shall thereupon be issued to the PC,
fully paid and nonassessable (the "Stock Component").
b. Adjustment; Allocation.
i. The Consideration is based on the value of the
Assets 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 PC to be completed prior to Closing to confirm the
accuracy and completeness of the information in the Financial
Statement.
ii. 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 Practice which
have accrued prior to the Effective Time and which remain unpaid
as of such time (the "Accounts Payable").
iii. 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.
iv. The parties hereby agree to allocate the
Consideration among the Assets in accordance with the attached
Exhibit B. The parties agree to file timely any information that
may be required to be filed pursuant to regulations promulgated
under Section 1060(b) of the Code. The parties further agree
that they shall report the federal, state, municipal, foreign and
local and other tax consequences of the purchase and sale
hereunder in a manner consistent with the allocation determined
pursuant to this section, and that they shall not take any
position inconsistent therewith in connection with any tax
return, refund claim, litigation or otherwise.
c. 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 Rosenthal and Smith, 6345 Balboa Blvd., Suite 330,
Encino, California 91316-1524 on January 16, 1998, or at such
other place, date or time as may be fixed by mutual agreement of
the parties.
d. Delivery of Records, Contracts; Transfer of Accounts.
At the Closing Dr. Beazley and the PC shall deliver or cause to
be delivered to OMEGA:
i. All of the Assets, including without limitation,
books, records, leases, contracts, employment agreements, non-
compete agreements, commitments and rights relating to the
Orthodontic Practice, with such rights of transfer so as to allow
OMEGA of the full benefit of the same.
ii. 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 Dr. Beazley
(and any successor) as a co-insured or otherwise assigning to
OMEGA and its successor the full benefits thereof.
iii. Any documentation necessary for the transfer of
any of the Assets, including the Bill of Sale, together with any
warranty or other documentation. Dr. Beazley shall cooperate
with OMEGA in the transfer of any utility accounts for the
Orthodontic Office.
ARTICLE 2.
ASSUMED LIABILITIES
a. Contracts. For purposes of this Article II the term
"Contracts" shall only mean only those licenses, permits,
contracts, leases, subleases, permits, registrations,
authorizations, commitments, purchase orders, contracts to
purchase materials, contracts to perform or receive services
(including work in process) and supplies, and all other
agreements (whether written or oral) that relate to the
Orthodontic Practice and are set forth on Exhibit Y attached
hereto.
b. Transfer. At the Closing, Dr. Beazley and the PC shall
assign and transfer or cause to be assigned and transferred to
OMEGA all of Dr. Beazley's and the PC's right, title and interest
in and to the Contracts and OMEGA shall assume and agree to
perform all obligations and liabilities on the part of Dr.
Beazley and the PC under the Contracts accruing on and after the
Effective Time; provided that to the extent that the assignment
of any Contract is not permitted without the consent of the other
party or parties to such Contract, this Agreement shall not
constitute an agreement to assign such Contract if such consent
is not given; and provided further that Dr. Beazley, the PC and
OMEGA, as appropriate, shall use all reasonable efforts to obtain
such consents, it being understood that such reasonable efforts
shall not include any requirement to offer or grant financial
accommodations to any third party.
c. Assumption of Liabilities by OMEGA. At the Closing,
Dr. Beazley and the PC shall assign to OMEGA, and OMEGA shall
assume and pay, perform and discharge, and indemnify and hold Dr.
Beazley and the PC harmless from and against, all obligations and
liabilities on the part of the PC under the Contracts arising on
and after the Effective Time and no other liabilities or
obligations of Dr. Beazley or the PC (collectively, the "Assumed
Liabilities").
d. No Enlargement. The assumption by OMEGA of the Assumed
Liabilities shall not enlarge any rights or remedies of any third
party under any Contract with Dr. Beazley or the PC. OMEGA
agrees to indemnify, defend and hold Dr. Beazley and the PC and
his or its employees, harmless from and against any and all
liability, loss, cost, damage and/or expense (including, without
limitation, reasonable attorneys' fees and costs) pertaining to
the Assumed Liabilities.
e. No Other Liabilities Assumed. OMEGA, Dr. Beazley and
the PC intend that OMEGA shall not assume or be obligated to pay,
perform or discharge any of Dr. Beazley's and the PC's
obligations other than the Assumed Liabilities specified in
Section 2.3. Except for the Assumed Liabilities specified in
Section 2.3, OMEGA, Dr. Beazley and the PC expressly agree OMEGA
is acquiring the Assets free and clear of all liens, claims of
any kind, encumbrances and restrictions.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Beazley and the PC
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 4.
COVENANTS OF DR. BEAZLEY AND THE PC
Dr. Beazley and the PC hereby covenant and agree with OMEGA
as follows:
a. Conduct of Business. Between the date of this
Agreement and the Closing, Dr. Beazley and the PC will do the
following unless OMEGA shall otherwise consent in writing:
i. conduct the PC's business only in the ordinary
course of business, and refrain from changing or introducing any
method of management or operations except in the ordinary course
of business and consistent with prior practices;
ii. 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 Assets;
iii. refrain from incurring any contingent or fixed
obligations or liabilities except those that are usual and normal
in the ordinary course of business;
iv. use their best efforts to keep available the
present employees of the PC and to preserve the goodwill of all
patients, suppliers, and others having business relations with
Dr. Beazley and the PC;
v. not commit or fail to commit any act which would
cause Dr. Beazley or the PC to suffer the revocation, suspension
or limitation of Dr. Beazley's or the PC's license; and
vi. permit OMEGA and its authorized representatives to
have full access to all of Dr. Beazley's properties, assets,
records, tax returns, records, contracts and documents and those
of the PC and furnish to OMEGA or its authorized representatives
such financial and other information with respect to his and the
PC's business or properties as OMEGA may from time to time
reasonably request.
b. Authorization from Others. Prior to the Closing, Dr.
Beazley and the PC will have obtained all assignments,
authorizations, consents and permits of others required to permit
the consummation by Dr. Beazley and the PC of the transactions
contemplated by this Agreement.
c. 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, Dr. Beazley and the PC shall give detailed
written notice thereof to OMEGA and shall use their best efforts
to prevent or promptly remedy the same.
d. Consummation of Agreement. Dr. Beazley and the PC
shall use their best efforts to perform and fulfill all
conditions and obligations on Dr. Beazley's or the PC's 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 5.
COVENANTS OF OMEGA
OMEGA hereby covenants and agrees with Dr. Beazley and the
PC as follows:
a. Authorization from Others. Prior to the Closing, it
will have obtained all authorizations, consents and permits of
others required to permit the consummation by it of the
transactions contemplated by this Agreement.
b. Consummation of Agreement. It 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 6.
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 VI will have been accomplished.
a. Representations; Warranties; Covenants. Each of the
representations and warranties of Dr. Beazley and the PC
contained in Schedule 1 shall be true and correct as though made
on and as of the Closing, and Dr. Beazley and the PC shall have
performed all of their obligations hereunder which by the terms
hereof are to be performed on or before the Closing.
b. PC. Dr. Beazley shall have furnished to OMEGA: (i) a
certificate of the State Secretary of State as to the legal
existence and good standing of the PC as a professional
corporation; and (ii) a copy of the resolutions adopted by the
board of directors and stockholders of the PC authorizing and
approving the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement.
c. 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.
d. Notices. Dr. Beazley shall, at OMEGA's expense, notify
all patients and obligors of accounts receivable, and third party
payors and others designated by OMEGA of the Asset purchase and
the other transactions contemplated hereunder pursuant to notices
substantially in the form collectively attached hereto as Exhibit
C.
e. Financial Condition. The financial condition of the
Orthodontic Practice 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 Practice, nor any material loss or
damage to the Assets, whether or not insured, which materially
affects the ability of the Orthodontic Practice to conduct its
business. Dr. Beazley 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.
f. Due Diligence. OMEGA, acting in good faith and in its
sole discretion, shall be reasonably satisfied with the results
of its "Due Diligence" on the PC 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 Practice or in the
condition or prospects (financial or otherwise) of the Assets
from the information provided prior to the date hereof. As used
herein, Due Diligence shall mean, without limitation, the results
of any matters (financial or otherwise) related to, or otherwise
deemed material by OMEGA, regarding the PC and Dr. Beazley,
including without limitation location of the Orthodontic Office
and its demographics, the leases, the Equipment, insurance,
licensing, malpractice issues, liabilities, compliance with laws
and regulations and health surveys.
ARTICLE 7.
CONDITIONS TO OBLIGATIONS OF DR. BEAZLEY AND THE PC
The obligations of Dr. Beazley and the PC 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 VII will have been accomplished.
a. 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.
b. Other Agreements. OMEGA shall have executed and
delivered to Dr. Beazley and the 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 collectively attached hereto as Exhibit E.
c. 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.
Beazley and the PC is likely to result in the restraint or
prohibition of the consummation of any material transaction
contemplated hereby.
ARTICLE 8.
OBLIGATIONS AFTER CLOSING
a. OMEGA Exceptional Practice and the Report Suggestions.
On and after the Closing, Dr. Beazley agrees to cause the PC to
implement the suggestions in the Report and the concepts of
OMEGA's Exceptional Practice.
b. Books and Records. OMEGA shall permit Dr. Beazley, his
accountants and attorneys, reasonable access to books and records
of the PC for the purpose of preparing such tax returns of Dr.
Beazley as may be required after the Closing and for other proper
purposes approved by OMEGA.
c. License. Dr. Beazley shall maintain all licenses
necessary to practice orthodontics in the State. Dr. Beazley
shall not commit or fail to commit any act which would cause Dr.
Beazley or the PC to suffer the revocation, suspension or
limitation of Dr. Beazley's or the PC's license.
ARTICLE 9.
INDEMNIFICATION.
a. Indemnification By Dr. Beazley and the PC. Subject to
the limitations set forth in Section 9.3, Dr. Beazley and the PC
jointly and severally agree to defend, indemnify and hold OMEGA
harmless from and against any damages, liabilities, losses and
expenses (including reasonable attorneys' 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 Dr. Beazley or the PC 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
its option recover such indemnification claims by OMEGA from Dr.
Beazley, the PC and its transferees in liquidation at any time
or times for recovery of indemnification claims.
b. Indemnification By OMEGA. Subject to the limitations
set forth in Section 9.3, OMEGA agrees to defend, indemnify and
hold Dr. Beazley harmless from and against any damages,
liabilities, losses and expenses (including reasonable attorneys'
fees) of any kind or nature whatsoever which may be sustained or
suffered by Dr. Beazley 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.
c. Exclusions. Notwithstanding Sections 9.1 and 9.2:
i. no indemnification shall be payable to the extent
any claim is covered by insurance; and
ii. no indemnification shall be payable with respect
to claims asserted more than five (5) years after the Closing.
d. 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.
e. Payment of Claims; Alternative Dispute Resolution.
Indemnification claims by OMEGA shall be paid or otherwise
satisfied by Dr. Beazley and the PC, or the PC's transferees in
liquidation, within 30 days after notice thereof is given by
OMEGA. In the event Dr. Beazley or the PC indicates in a writing
delivered to OMEGA that he or it disputes the nature or amount of
the claim, 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 Los Angeles, California in accordance with the
commercial alternative dispute resolution rules of said
Association, with the fees and expenses thereof to be borne 50%
by OMEGA and 50% by Dr. Beazley and the PC.
ARTICLE 10.
MISCELLANEOUS
a. Termination.
i. At any time prior to the Closing, this Agreement
may be terminated: (i) by mutual consent of OMEGA and the PC,
with the approval of their respective boards of directors or
members, (ii) by either OMEGA or Dr. Beazley and the PC 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. Beazley if the conditions
stated in Article VII have not been satisfied at or prior to the
Closing.
ii. Upon any such termination, 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.
b. 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.
c. 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.
d. 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. Beazley or the PC, to:
William W. Beazley, D.D.S.
5400 Balboa Boulevard, Suite 321
Encino, California 91316-1596
If to 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.
e. 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 any party hereto, have
been expressed herein or therein.
f. 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; provided further that
OMEGA shall be permitted to assign its rights and obligations
hereunder without the consent of the PC to any person, firm or
corporation controlled by OMEGA, controlling OMEGA or under
common control with OMEGA.
g. 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 any 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.
h. 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.
i. 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 Practice and
is not in any way related to or dependent upon referrals by and
between OMEGA and Dr. Beazley or the PC.
j. Further Assurances. Following the execution of this
Agreement, Dr. Beazley and the PC, on the one hand, and OMEGA, on
the other hand, each agrees:
i. 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;
ii. 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
iii. to provide the other (or its counsel) promptly
with copies of all filings made by such party with any state or
federal governmental agency in connection with this Agreement or
the transactions contemplated hereby.
k. 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.
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.
WILLIAM W. BEAZLEY, D.D.S., INC.
By: /s/ William W. Beazley, D.D.S.
William W. Beazley, D.D.S.,
President
/s/ William W. Beazley, D.D.S.
William W. Beazley, D.D.S.
OMEGA ORTHODONTICS, INC.
By /s/ Robert J. Schulhof
Robert J. Schulhof
Its: President and Chief
Executive Officer
Duly Authorized
Exhibit A
Financial Statement
Exhibit B
Allocation of Purchase Price
Tangible Assets listed in Schedule II to the Bill of Sale
$35,000
Accounts Receivable
$65,000
Goodwill
$1,360,000
Exhibit C
Notices
Exhibit D
Bill of Sale and Assignment
BILL OF SALE AND ASSIGNMENT
The undersigned, William W. Beazley, D.D.S., Inc. (the "PC")
for good and valuable consideration the receipt of which is
hereby acknowledged, hereby sells, assigns, transfers, delivers
and conveys to OMEGA Orthodontics, Inc., a Delaware corporation,
having a usual place of business in Acton, California ("OMEGA"),
all of his right, title and interest in and to the assets of the
orthodontic practice owned and operated by the PC (the
"Orthodontic Practice") at 5400 Balboa Boulevard, Suite 321,
Encino, California 91316-1596, wheresoever situated and whether
or not specifically referred to herein, including without
limitation the assets listed and described in Schedule II
attached hereto (such assets and rights of the PC are
collectively referred to as the "Assets"), excepting therefrom
the assets listed on Schedule I (the "Excluded Assets"),
attached hereto and made a part hereof, and including without
limitation, the following Assets:
(a) a lease at 5400 Balboa Boulevard, Suite 321, Encino,
California 91316-1596 (the "Orthodontic Office"), including all
rights and remedies (the Lease");
(b) all machinery and equipment ("Equipment"), books and
records used or owned by the Orthodontic Practice and all other
tangible and intangible personal property at or related to the
Orthodontic Office, whether or not located at the Orthodontic
Office, or to the Orthodontic Practice conducted therein, whether
or not located at the Orthodontic Office;
(c) all contracts, licenses, permits, registrations,
authorizations, leases, subleases, commitments, purchase orders,
contracts to purchase materials, contracts to perform or receive
services (including work in process) and supplies, and all other
agreements (whether written or oral) relating to the Orthodontic
Practice listed on the attached Exhibit Y (the "Contracts");
(d) all prepaid claims, prepaid taxes and other prepaid
expense items and deferred charges, credits, advance payments,
security and other deposits made by the PC to any other person
relating to Orthodontic Practice;
(e) all Accounts Receivable of the PC on the close of
business on the Closing Date and the PC's right to reimbursement
for all professional services provided to managed care and fee-
for-services patients. "Accounts Receivable" shall include all
rights to payment for goods or services rendered, and all other
obligations and receivables from others, no matter how evidenced
relating to the Practice, including purchase orders, notes,
instruments, drafts and acceptances and all guarantees of the
foregoing, and security therefor, relating to the Practice; and
(f) any rights of William W. Beazley, D.D.S. ("Dr.
Beazley") or the PC pertaining to any counterclaims, set-offs or
defenses Dr. Beazley or the PC may have with respect to any of
the liabilities assumed by OMEGA.
The PC represents that it has good and marketable title in
fee simple to all of the Assets, free and clear of liens,
encumbrances, restrictions or claims of any kind. All of the
Assets are provided "as is."
OMEGA assumes and agrees to pay, perform and discharge, and
indemnify and hold the PC and Dr. Beazley harmless from and
against obligations and liabilities under the Lease and the
Contracts arising on and after the Effective Time, and no other
obligations and liabilities of the PC or Dr. Beazley (the
"Assumed Liabilities").
The assumption by OMEGA of the Assumed Liabilities shall not
enlarge any rights or remedies of any third party under any
Contract with Dr. Beazley or the PC. OMEGA agrees to indemnify,
defend and hold Dr. Beazley and the PC and his or its employees,
harmless from and against any and all liability, loss, cost,
damage and/or expense (including, without limitation, reasonable
attorneys' fees and costs) pertaining to the Assumed Liabilities.
OMEGA, Dr. Beazley and the PC intend that OMEGA shall not
assume or be obligated to pay, perform or discharge any of Dr.
Beazley's or the PC's obligations other than the Assumed
Liabilities. Except for the Assumed Liabilities, OMEGA, Dr.
Beazley and the PC expressly agree OMEGA is acquiring the Assets
free and clear of all liens, claims of any kind, encumbrances,
and restrictions.
This Bill of Sale and Assignment is executed and delivered
in connection with an Affiliation Agreement and asset Purchase
Agreement entered into by and between Dr. Beazley and the PC, on
the one hand, and OMEGA, on the other hand, dated January 16,
1998.
WITNESS the execution under seal this 16th day of January,
1998.
William W. Beazley, D.D.S., INC.
By:____________________________________
William W. Beazley, D.D.S.,
President
Schedule I
Excluded Assets
1. All patient records, files and X-rays.
2. All of the PC's goodwill, which may include
location goodwill, name recognition goodwill, patient
allegiance, etc.
3. Covenant Not to Compete of the PC.
4. All business, financial and accounting records and
books of account of the PC relating to the Practice
exclusive of the PC's general ledger.
5. The following personal items of William W. Beazley:
Framed diplomas (3)
USC Clock
Framed picture, Nell Revell, artist
Tiffany Lamp
Shell Box
Books, pictures and memorabilia in bookcase
Shells in display cases (4)
Ships in display cases (4)
Blue glass fish
Schedule II
Included Assets
Reception Room
2 - 6 foot couches
12 single seat side chairs (upholstered w/ wood arms)
2 large glass top tables w/ copper base
1 Oriental area rug
3 aquariums w/ equipment
Decorative accessories (plants, shells)
Reception Desk
2 6/ section wall file cabinets
2 desk chairs (armless)
1 IBM Selectric II typewriter
2 AT&T Merlin System telephones
1 touch-tone telephone
1 stepping stool & (2) wastebaskets
Business Office
1 HP Laserjet Series II printer
1 Epson LX800 dot matrix printer
1 Compaq 286 CPU
1 Ortho II CPU
2 CRT monitors
2 keyboards (1/AST - 1/Compaq)
1 Brothers IntelliFax 680
1 IBM Selectric II typewriter
2 AT&T Merlin System telephones
1 AT&T 1343 answering machine
1 VeriFone credit card transmitter
4 desk chairs (w/arms)
3 wall pictures ("Walking the Line")
1 stepping stool & (2) wastebaskets
Doctors Office
1 desk
1 black leather desk chair
2 upholstered side chairs
2 upholstered/painted stools
1 wall mirror
2 x-ray view boxes
1 AT&T Merlin System telephone
1 wastebasket (wood)
Exam/Consultation Room
2 Revelation contour dental chairs
2 chairside units w/ cavitron units (1 /Dentsply 76 - 1 Dentsply
2002)
2 Dome dental chair lights
1 x-ray view box
1 Samsung TV/video player
1 wall picture
Operatory
5 SS White dental chairs
5 chairside units w/Dentsply 2002 cavitron units
5 Belmont dental lights (ceiling mounted)
2 Chemiclave 5000 autoclaves (Harvy)
1 L&R 2014 ultrasonic cleaner
2 Kerr inlay furnaces
1 Rocky Mountain spot welder
2 6 foot upholstered benches
2 wall pictures
1 AT&T Merlin System telephohne
Middle Room
2 Revelation contour dental chairs
1 Canon NP1215 copy machine
1 4/drawer fireproof file cabinet (legal size/Schwab)
Miscellaneous (Swartz)
4 contour dental chairs
4 dental lights (ceiling mount)
4 chairside stools
4 chairside units
3 instrument cabinets
EXHIBIT Y
List of Contracts
1. Lease Agreement, by and between Encino Medical Plaza Co., a
limited partnership, and William W. Beazley, D.D.S., Inc., dated
November 1, 1988, as amended to date.
2. Ortho II Software Maintenance Agreement, dated April 1, 1997
EXHIBIT E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
SCHEDULE 1
Representations and Warranties of
Dr. Beazley and the PC to Omega
William W. Beazley, D.D.S. ("Dr. Beazley") and William W.
Beazley, D.D.S., Inc., a California professional corporation (the
"PC") hereby represent and warrant to Omega Orthodontics, Inc., a
Delaware corporation ("OMEGA"), as follows (all capitalized terms
used herein and not otherwise defined herein shall have the
respective meanings given to such terms in the Affiliation
Agreement and Asset Purchase Agreement, entered into as of
January 16, 1998, by and between Dr. Beazley, the PC and OMEGA
("the Agreement")):
1. Organization. The PC is duly organized, validly
existing and in good standing under the laws of the State of
California.
2. The Orthodontic Practice. The Assets of the
Orthodontic Practice are owned 100% by the PC. The PC has the
full power to conduct business as currently conducted by the
Orthodontic Practice and to own and lease the property it
purports to own or lease, as the case may be. All of the
outstanding stock of the PC is owned by Dr. Beazley, free and
clear of all liens, claims of any kind, encumbrances or other
restrictions.
3. Authorization of Transaction. All necessary action has
been taken by Dr. Beazley to authorize the execution of the
Agreement by Dr. Beazley and the PC, and the delivery and
performance of the Agreement and the transactions contemplated
thereby, and the Agreement is the valid and binding obligation of
Dr. Beazley and the PC, enforceable against Dr. Beazley and the
PC in accordance with its terms.
4. Present Compliance with Obligations and Laws. Except
as disclosed on Exhibit X attached to this Schedule, there is
not: (a) a default in the performance of any obligation,
agreement or condition of any debt instrument by Dr. Beazley or
the PC 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; (b) a default of or
breach of (with or without the passage of time or the giving of
notice) any other contract to which Dr. Beazley or the PC is a
party or by which the PC's assets are bound; or (d) any violation
of any law, regulation, administrative order or judicial order
applicable to Dr. Beazley, or his or the PC's business or assets.
5. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of
the Agreement, nor the performance of the transactions
contemplated thereby, will: (i) 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. Beazley or
the PC is a party, or give any person the right to accelerate any
indebtedness or terminate any right; (ii) 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 Dr. Beazley or the PC is a party or by which the PC's
assets are bound; or (iv) result in a violation of any law,
regulation, administrative order or judicial order applicable to
Dr. Beazley or the PC, or either of their business or assets.
(b) Except as disclosed on the attached Exhibit X to
this Schedule, the execution, delivery and performance of the
Agreement and the transactions contemplated thereby by Dr.
Beazley and the PC do not require the consent, waiver, approval,
authorization, exemption of or giving of notice to any
governmental authority.
6. Investigations and Licenses.
(a) Dr. Beazley and the PC have all necessary licenses
to practice orthodontics in the State.
(b) Neither Dr. Beazley nor the PC is subject to any
investigation, whether threatened, current or pending, under
which Dr. Beazley or the PC may be required to forfeit or suffer
the revocation, suspension or limitation of Dr. Beazley's license
to practice orthodontics and Dr. Beazley is not subject to any
investigation, whether threatened, current or pending by a
commercial third-party payor.
7. Financial Statement. Attached as Exhibit A to the
Agreement is the Financial Statement of the Orthodontic Practice.
To the best knowledge of Dr. Beazley and the PC, the Financial
Statement is complete and correct and fairly presents in all
material respects the financial position of the Orthodontic
Practice 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.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule,
the PC has good and marketable title in fee simple to all of the
Assets, including without limitation, all real and personal
property, machinery and equipment used or owned by the
Orthodontic Practice (the "Equipment"), free and clear of liens,
encumbrances, restrictions or claims of any kind (the
"Property"). All the Property owned or leased by the PC
hereunder in "as is" condition.
(b) No other person owns any of the assets necessary
for the operation of the Orthodontic Practice. The Orthodontic
Practice does not operate any of its practice through any other
entities or persons.
9. Payment of Taxes. Dr. Beazley and the PC have 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 Assets purchased pursuant to the
Agreement shall be paid or provided for by Dr. Beazley and the PC
after the Closing out of the Consideration to be received upon
consummation of the Agreement.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, neither
Dr. Beazley nor the PC had any 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) relating to the Orthodontic Practice,
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, 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
Practice which has not been specifically disclosed in the
Financial Statement 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 PC
or the Orthodontic Practice, 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 PC or the Orthodontic Practice;
(ii) any mortgage, encumbrance or lien placed on
any of the Property, or the property subject to any lease, or
which remains in existence on the date hereof; or
(iii) any obligation or liability incurred by
Dr. Beazley or the PC relating to the Orthodontic Practice other
than obligations and liabilities incurred in the ordinary course
of business and disclosed on Exhibit X attached to this Schedule.
(c) Except as described in Exhibit X to this Schedule,
there are no accounts payable of the PC (not including payroll,
"Accounts Payable") that accrued prior to the date hereof and
which are unpaid as of such date.
11. Litigation. Except for matters described on Exhibit X
to this Schedule, there is no action, suit, claim, proceeding or
investigation, 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 Dr. Beazley, threatened against
or involving Dr. Beazley, the PC or the Orthodontic Practice, 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 Practice, the PC or Dr. Beazley is a party
which question the Agreement or affect the transactions
contemplated thereby, 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. Beazley, the PC or the Orthodontic Practice.
12. Insurance. Dr. Beazley and the PC have possessed
adequate occurrence professional liability coverage for the five
(5) years prior to the date of the Agreement protecting the
Orthodontic Practice, the PC and Dr. Beazley from any
professional malpractice liability that might arise because of
the Orthodontic Practice's, the PC's or Dr. Beazley's practice
activities over the preceding five (5) years. Prior to the
Closing, the PC shall have obtained and shall continue to
maintain, at its cost, Occurrence Medical Malpractice Liability
Insurance for Dr. Beazley and the PC. The Orthodontic Practice
possesses adequate insurance coverage for its Property.
EXHIBIT X
Exceptions to Representations and
Warranties of Dr.Beazley, the PC and
Orthodontic Practice to Omega
SCHEDULE 2
Representations and Warranties of
Omega to Dr. Beazley and the PC
Omega Orthodontics, Inc., a Delaware corporation ("OMEGA"),
hereby represents and warrants to William W. Beazley, D.D.S.
("Dr. Beazley") and William W. Beazley, D.D.S., Inc., a
California professional corporation (the "PC") 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 the Affiliation Agreement
and Asset Purchase Agreement, entered into as of January 16,
1998, by and between OMEGA, Dr. Beazley and the PC (the
"Agreement"), and the 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 the
Agreement.
EXHIBIT 10.3
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
AMONG
SCOTT E. FELDMAN, D.D.S., M.S., INC.
(the "New PC")
AND
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
(the "MSO")
AND
OMEGA ORTHODONTICS, INC.
("OMEGA")
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT is made effective
as of this 7th day of January, 1998, by and among Scott E.
Feldman, D.D.S., M.S., 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
Asset Purchase Agreement (the "Affiliation Agreement") dated as
of March 31, 1997, pursuant to which OMEGA acquired certain
assets of Dr. Feldman;
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 New PC and the MSO have entered into that
certain Management Services Agreement, dated October 6, 1997 (the
"Original Agreement"), pursuant to which the MSO provides
equipment, facilities and personnel to, and to manage the non-
orthodontic business affairs of, the New PC;
WHEREAS, the New PC intends with the consent of the MSO
to provide certain professional dental services at an orthodontic
office located at 19231 Victory Boulevard, Suite 557, Reseda,
California (the "Reseda Office"), subject to a Management
Services Agreement between the PC and Omega Orthodontics of
Reseda, Inc., a Delaware corporation ("Omega Reseda");
WHEREAS, the parties hereto desire to amend and restate
this Agreement to permit Omega Reseda to act as the manager of
the PC with respect to the Reseda Office only.
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
a. The initial term of this Agreement shall commence
on January 7, 1998 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
a. 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 other than at the Reseda Office and agrees that the
MSO shall have all power and authority reasonably necessary to
manage the non-orthodontic business affairs of the New PC at the
Orthodontic Offices 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.
b. 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.
c. Administrative Services.
i. The MSO shall supply secretarial, reception,
maintenance, front office, skilled assistants and other personnel
at the Orthodontic Offices, 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, 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.
ii. "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 at the Orthodontic Offices 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.
d. Business Systems, Procedures and Forms. In
consultation with the New PC, the MSO shall establish
standardized business systems and procedures for the New PC's
business and operations at the Orthodontic Offices, 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 at the Orthodontic Offices. The
MSO shall provide training to the staff of the New PC in the
implementation and operation of such standardized business
systems and procedures at the Orthodontic Offices. 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.
e. 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 at the
Orthodontic Offices. 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 at the Orthodontic Offices including,
without limitation, all orthodontic appliances and other
supplies, laboratory supplies and sanitation supplies.
f. 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 at the Orthodontic
Offices 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 and the Orthodontists (if any)
or any employee or agent of the New PC.
g. 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 at the Orthodontic Offices , 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 [for services rendered at the
Orthodontic Offices]; (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
provided at the Orthodontic Offices 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 at the Orthodontic Offices
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.
h. Disbursement of Funds.
i. All monies collected for the New PC by the
MSO pursuant to Section 2.7 above shall be deposited into an
account (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.
ii. 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 for services rendered at the Orthodontic Offices, 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.
iii. 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.
i. 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.
i. "MSO Expenses" shall mean all operating and
non-operating expenses incurred in the operation of the New PC at
the Orthodontic Offices, 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;
(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.
j. 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 at
theOrthodontic Offices . 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 at the
Orthodontic Offices, 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.
k. Accounting; Bookkeeping and Reports. The MSO
shall provide for or arrange for all accounting and bookkeeping
services related to the New PC's operations at the Orthodontic
Offices, 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 at the Orthodontic Offices. The MSO shall assist
and advise the New PC in the financial management of the New PC.
l. Marketing. The MSO shall design and execute a
marketing plan to promote the New PC's professional services at
the Orthodontic Offices. 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 at the Orthodontic Offices, 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.
m. 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.
n. 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.
o. Maintenance and Cleaning Services. The MSO shall
arrange for security, maintenance and cleaning of the Orthodontic
Offices, including the furniture, fixtures and equipment therein.
p. 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.
q. Insurance. The MSO shall provide and pay for
customary office property damage and liability insurance for the
operations of the Orthodontic Offices, including business
interruption insurance, not including professional liability
insurance (which shall be and remain the responsibility of the
New PC).
r. Practice Transition and Associate Selection. Dr.
Feldman 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
a. 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.
b. 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.
c. 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 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.
d. 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 performed at the
Orthodontic Offices and related charges and to facilitate the
delivery of quality patient care by the New PC at the Orthodontic
Offices. 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.
e. 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 at the
Orthodontic Offices. 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 at the Orthodontic Offices participate in such
continuing education as is necessary for Dr. Feldman and such the
Orthodontists to remain current.
f. 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.
g. 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 Dr. Feldman or such
Orthodontist will not, directly or indirectly, either for Dr.
Feldman or such Orthodontist's own benefit or for the benefit of
any other person, firm, company, corporation or other entity,
call on, solicit, divert or take away, or attempt to call on,
solicit, divert or take away, any of the PC's patients, business
or employees, including but not limited to, those to whom Dr.
Feldman or such Orthodontist catered or provided services or
those with whom Dr. Feldman or such Orthodontist became
acquainted while engaged as an employee of the PC. Such
Employment Agreement (or separate 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.
h. 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
a. Orthodontic Services Separate. 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.
b. No Solicitation. 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.
c. Advertising. 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.
d. No Referrals. 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
a. Lease. 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:
i. The MSO is the lessee by assignment under
lease for the premises occupied by the New PC at the Orthodontic
Offices (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 at the Orthodontic Offices. 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:
(1) 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.
(2) 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(a) and Exhibit "A," shall be the complete terms and
conditions of the sublease created hereby.
(3) 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.
(4) In the event this Agreement is
terminated according to its terms, this sublease shall also
terminate automatically.
(5) 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.
(6) 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.
b. Leasehold Improvements and Other Tangible Assets.
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:
i. 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.
ii. 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.
iii. 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.
c. No Warranty.
i. 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.
ii. 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 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 relating to its business and operations at
the Orthodontic Offices, 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
a. 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):
i. The New PC shall comply with all Laws and
ethical and professional standards applicable to the practice of
orthodontics and cause all of its employees to do the same.
ii. 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 at the
Orthodontic Offices. 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 at the Orthodontic Offices.
iii. 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, provided however, that during
the term hereof, the New PC also shall be permitted to practice
orthodontics at the office located at 6321 Topanga Canyon
Boulevard, Suite 424, Woodland Hills, California 91367.
iv. 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.
v. 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.
b. 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
a. 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 for 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.
b. 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.
c. 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.
d. 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.
e. 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
a. Termination by the New PC.
i. 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.
b. Termination by MSO. MSO may terminate this
Agreement as follows:
i. 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.
ii. 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.
iii. 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.
iv. 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 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
a. 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.
b. 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.
c. 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 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
a. Alternative Dispute Resolution.
i. 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.
ii. Notwithstanding anything in this Section 14.1
to the contrary:
(1) 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.
(2) 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.
(3) 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.
b. 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
a. 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.
b. 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.
c. 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.
d. 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.
e. 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.
f. Entire Agreement. This Agreement including the
Schedules and Exhibits hereto, together with the previously
executed Stock Put/Call Option and Successor Designation
Agreement 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.
g. 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.
h. 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.
i. 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.
j. 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.
k. 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.
l. 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.
m. Amendments. This Agreement may be amended only by
the written consent of both parties.
n. 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.
o. 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.
p. Captions. Captions to paragraphs in this Agreement
are for ease of reference, and shall not be considered an
interpretation of the paragraph.
q. Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall
be deemed an original.
r. Schedules and Exhibits. To the extent not
otherwise set forth herein or attached hereto, all schedules and
exhibits to the Original Agreement are incorporated herein by
this reference.
IN WITNESS WHEREOF, the parties hereto have executed
this agreement as of the day and year first above written.
NEW PC:
SCOTT E. FELDMAN, D.D.S.,
M.S., INC.
By: /s/ Scott E. Feldman,
D.D.S.
Name: Scott E. Feldman
Title: President
MSO:
OMEGA ORTHODONTICS OF
WOODLAND HILLS, INC.
By: /s/ Robert J. Schulhof
Name: Robert J. Schulhof
Title: President
OMEGA:
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Name: Robert J. Schulhof
Title: President
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Scott E. Feldman, D.D.S.
6325 Topanga Canyon Boulevard, No. 424
Woodland Hills, CA 91367
SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Dr. Feldman Attach]
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its o
bligations 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 Prac
tice 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 colle
ctions of all revenues generated by or on behalf of the New PC at
the Orthodontic Offices (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 at the Orthodontic Offices
and for any other goods or services sold or provided to such
patients.
EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Feldman Attach]
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Feldman Attach]
EXHIBIT C
NEW PC'S AFFIDAVIT
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 Scott E. Feldman, D.D.S., M.S., Inc., a California
professional corporation (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 January 7, 1998,
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 Los Angeles, California this ___ day of January,
1998.
___________________________
Scott E. Feldman, D.D.S.
STATE OF CALIFORNIA
______________________, ss January ___, 1998
Subscribed and sworn to before me this ___ day of January,
1998.
[SEAL] ____________________________
Notary Public
My Commission Expires:
EXHIBIT D
SECURITY AGREEMENTS
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 7th day of
January, 1998, by Scott E. Feldman, D.D.S., M.S., Inc., a
California professional 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 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;
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.
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:
SCOTT E. FELDMAN, D.D.S., M.S., INC. OMEGA
ORTHODONTICS OF
WOODLAND HILLS , INC.
By:____________________________
By:__________________________
Name: Name:
Title: Title:
DR. FELDMAN:
_______________________________
Scott E. Feldman, D.D.S.
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
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.
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.
TABLE OF CONTENTS
ARTICLE 1. 3
ARTICLE 2. 3
a. General 3
b. Orthodontic Office Services 3
c. Administrative Services 4
d. Business Systems, Procedures and Forms 4
e. Purchasing, Accounts Payable, Supplies and Inventory
Control 5
f. Regulatory Compliance Services 5
g. Billing, Collection 5
h. Disbursement of Funds 6
i. MSO Expenses 6
j. Credit Reports 8
k. Accounting; Bookkeeping and Reports 8
l. Marketing 9
m. Complaints 9
n. Practice Laws 9
2.15 Monthly Meetings 9
o. Maintenance and Cleaning Services 9
p. Licenses and Permits 9
q. Insurance 10
r. Practice Transition and Associate Selection 10
ARTICLE 3. 10
a. General 10
b. Employment of the Orthodontists and Rendering of
Patient Care 10
c. Professional Services 10
d. Records 11
e. Professional Expenses 11
f. Professional Liability Insurance 11
g. Employment Agreement 11
h. Confidentiality 12
ARTICLE 4. 13
a. Orthodontic Services Separate 13
b. No Solicitation 13
c. Advertising 13
d. No Referrals 13
ARTICLE 5. 14
a. Lease 14
b. Leasehold Improvements and Other Tangible Assets 15
ARTICLE 6. 16
ARTICLE 7. 17
ARTICLE 8. 17
a. New PC's Covenants 17
b. MSO's Covenants 18
ARTICLE 9. 18
a. Insurance to be Maintained by the New PC 19
b. Insurance to be Maintained by the MSO 19
c. Tail Insurance Coverage 19
d. Additional Insureds 19
e. Indemnification 19
ARTICLE 10. 20
a. Termination by the New PC 20
b. Termination by MSO 20
ARTICLE 11. 21
ARTICLE 12. 22
ARTICLE 13. 22
a. Access to Records 22
b. Patient Records 22
c. The New PC's Control Over the Orthodontic Practice 22
ARTICLE 14. 23
a. Alternative Dispute Resolution 23
b. Waiver of Jury 23
ARTICLE 15. 24
a. Notices 24
b. Confidentiality 24
c. Contract Modifications for Prospective Legal Events 25
d. Remedies Cumulative 25
e. No Obligation to Third Parties 25
f. Entire Agreement 25
g. Assignment 25
h. Attorneys' Fees 25
i. Governing Law 26
j. Events Excusing Performance 26
k. Compliance with Applicable Laws 26
l. Language Construction 26
m. Amendments 26
n. Severability 26
o. No Waiver 26
p. Captions 26
q. Counterparts 27
r. Schedules and Exhibits 27
EXHIBIT 10.27a
BOST1-636893-2
OMEGA ORTHODONTICS INC.
3621 Silver Spur Lane
Acton, CA 93510
April 2, 1998
Dr. C. Joel Glovsky
44 Grey Lane
Lynnfield, MA 01940
Marshall Sterman, President
The Mayflower Group, Ltd.
393 Commonwealth, MA 02115
Re: Amendment 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 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 for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. A section 17 amended to read as follows:
17. CASH PAYMENTS. As additional consideration for the
services rendered by each of the Consultants, Omega
shall make to following cash payments in accordance with
the following schedule to assist each Consultant to meet
his or its tax obligations with respect to the receipt
of the Glovsky Shares of the Mayflower Shares as the
case may be:
Date Amount
January 1, 1998 $67,000
April 2, 1998 $75,000
Upon payment of the April 2, 1998 amount set forth above,
all payments regarding the Agreement shall have been made to
the Consultants and no further payments of any kind shall be
owed by OMEGA in regards to the Agreement, unless such are
mutually agreed to in writing between the parties hereto.
Notwithstanding the foregoing, if, within three (3) year
from the date of this document's execution, either
Consultant suffers any unforeseen tax expense arising solely
and directly out of the Agreement, then OMEGA agrees to
reimburse such Consultant an amount equal to the monetary
sum Consultant is finally assessed.
This agreement constitutes the entire agreement between the
parties concerning this subject matter, and supersede all
prior and contemporaneous agreements, representations and
understandings of the parties concerning the contents hereof
and thereof. 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.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the day and year first above written.
THE MAYFLOWER GROUP, LTD.
/s/ Marshall Sterman
Marshall Sterman
Title: President
/s/ C. Joel Glovsky
OMEGA ORTHODONTICS, INC.
By:/s/ Edward Mulherin
Name: Edward Mulherin
Title: Chief Financial Officer
EXHIBIT 10.32
iv
MANAGEMENT SERVICES AGREEMENT
BETWEEN
Leon J. Leonard, D.M.D., P.C.
(the "New PC")
AND
Omega Orthodontics of Conyers, Inc.
(the "MSO")
AND
Omega Orthodontics, Inc.
("OMEGA")
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM 3
ARTICLE 2 DUTIES OF THE MSO 3
2.1 GENERAL 3
2.2 ORTHODONTIC OFFICE SERVICES 3
2.3 ADMINISTRATIVE SERVICES 3
2.4 BUSINESS SYSTEMS, PROCEDURES AND FORMS 4
2.5 PURCHASING, ACCOUNTS PAYABLE, SUPPLIES AND INVENTORY
CONTROL 5
2.6 REGULATORY COMPLIANCE SERVICES 5
2.7 BILLING, COLLECTION 5
2.8 DISBURSEMENT OF FUNDS 6
2.9 MSO EXPENSES 6
2.10 CREDIT REPORT 8
2.11 ACCOUNTING; BOOKKEEPING AND REPORTS 8
2.12 MARKETING 9
2.13 COMPLAINTS 9
2.14 PRACTICE LAWS 9
2.15 MONTHLY MEETINGS 9
2.16 MAINTENANCE AND CLEANING SERVICES 9
2.17 LICENSES AND PERMITS 10
2.18 INSURANCE 10
2.19 PRACTICE TRANSITION AND ASSOCIATE SELECTION 10
ARTICLE 3 DUTIES OF THE NEW PC 10
3.1 GENERAL 10
3.2 EMPLOYMENT OF THE ORTHODONTISTS AND RENDERING OF
PATIENT CARE. 11
3.3 PROFESSIONAL SERVICES 11
3.4 RECORDS 11
3.5 PROFESSIONAL EXPENSES 12
3.6 PROFESSIONAL LIABILITY INSURANCE 12
3.7 EMPLOYMENT AGREEMENT 12
3.8 CONFIDENTIALITY 13
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION 13
ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT 14
5.3. NO WARRANTY 16
ARTICLE 6 COMPENSATION 17
ARTICLE 7 SECURITY INTEREST 17
ARTICLE 8 COVENANTS 18
8.1 NEW PC'S COVENANTS 18
8.2 MSO'S COVENANTS 19
ARTICLE 9 INSURANCE AND INDEMNITY 21
9.1 INSURANCE TO BE MAINTAINED BY THE NEW PC 21
9.2 INSURANCE TO BE MAINTAINED BY THE MSO 21
9.3 TAIL INSURANCE COVERAGE 21
9.4 ADDITIONAL INSUREDS 21
9.5 INDEMNIFICATION 21
ARTICLE 10 TERMINATION 22
10.1 TERMINATION BY THE NEW PC 22
10.2 TERMINATION BY MSO 23
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY 24
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP 24
ARTICLE 13 MISCELLANEOUS 25
13.1 ACCESS TO RECORDS 25
13.2 PATIENT RECORDS 25
13.3 THE NEW PC'S CONTROL OVER THE ORTHODONTIC PRACTICE 25
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION 25
14.1 ALTERNATIVE DISPUTE RESOLUTION 25
14.2 WAIVER OF JURY 26
ARTICLE 15 GENERAL PROVISIONS 26
15.1 NOTICES 26
15.2 CONFIDENTIALITY 28
15.3 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS28
15.4 REMEDIES CUMULATIVE 28
15.5 NO OBLIGATION TO THIRD PARTIES 28
15.6 ENTIRE AGREEMENT 29
15.7 ASSIGNMENT 29
15.8 ATTORNEYS' FEES 29
15.9 GOVERNING LAW 29
15.10 EVENTS EXCUSING PERFORMANCE 29
15.11 COMPLIANCE WITH APPLICABLE LAWS 30
15.12 LANGUAGE CONSTRUCTION 30
15.13 AMENDMENTS 30
15.14 SEVERABILITY 30
15.15 NO WAIVER 30
15.16 CAPTIONS 30
15.17 COUNTERPARTS 30
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
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 1st
day of January, 1998, by and between Leon J. Leonard,
D.M.D., P.C., a professional corporation (the "New PC")
incorporated under the laws of the State of Georgia (the
"State"), and Omega Orthodontics of Conyers, 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 Leon J. Leonard, D.D.S. ("Dr.
Leonard") who is duly licensed to practice orthodontics in
the State have entered into that certain Affiliation
Agreement and Asset Purchase Agreement (the "Affiliation
Agreement") dated as of December 29, 1997, pursuant to which
OMEGA acquired certain assets of Dr. Leonard;
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. Leonard and any and all other orthodontists
who are or become affiliated with the New PC as of or
following the date hereof 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. Leonard and the Orthodontists
(if any) to render quality orthodontic care to the patients
of the New PC;
WHEREAS, the New PC wishes to retain the MSO to
perform the functions and to provide the services described
in this Agreement to assist the New PC to achieve the above
goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall
perform managerial and administrative services for the New
PC and provide office space and orthodontic facilities
appropriate for rendering general orthodontic treatment at
the Orthodontic Offices upon the following terms and
conditions:
ARTICLE 1
TERM
1.1 The initial term of this Agreement shall
commence on the date first above written and continue for a
period of twenty (20) years (the "Initial Term"), subject,
however, to earlier termination in accordance with Article
10 hereof. This Agreement shall continue for two separate
and successive ten year periods (each a "Renewal Term" and
collectively with the Initial Term, the "Term") unless the
MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then
effective Renewal Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide 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, 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. Leonard 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. Leonard 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. Leonard 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 initiated by, and 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. Leonard 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. Leonard 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. Leonard 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;
(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;
(10) Costs of any merger or acquisition or
litigation expenses attributable to the MSO, OMEGA or any
entity that controls, is controlled by or is under common
control with either or both of them and which costs or
expenses do not arise out of or in connection with any
merger or acquisition to which the New PC is a party or any
litigation involving the New PC or its operation; and
(11) Any operating or non-operating expenses
incurred in the operation of the New PC which are not
otherwise initiated or approved by the New PC and other
expenses which are expressly designated herein as expenses
or responsibilities of the New PC.
2.10 Credit Report. 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.
The New PC shall be responsible for preparing and filing its
own Federal, state and local tax returns. 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. Leonard 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. Leonard 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 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. Leonard and
all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by
Dr. Leonard 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. Leonard and the Orthodontists and the other
Practice Providers acting under the supervision and control
of Dr. Leonard 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. Leonard 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. Leonard 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. Leonard and all the Orthodontists employed by the
New PC participate in such continuing education as is
necessary for Dr. Leonard 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.
Leonard 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. Leonard 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. Leonard 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. Leonard 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. Leonard'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. Leonard's or such Orthodontist's Employment Agreement
with the New PC, Dr. Leonard 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. Leonard'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. Leonard'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.
Leonard 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. Leonard 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 forms, manuals, policies and
procedures 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 (except Dr.
Leonard and his partners, employees and professional
advisors on a "need to know" basis) without the express
prior written consent of the MSO; and (ii) to impose this
obligation of confidentiality on Dr. Leonard and his
partners, professional advisors. 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 Dr.
Leonard and his partners, employees and professional
advisors to immediately return to the MSO all Confidential
Information, and the New PC will not, and will cause Dr.
Leonard and his partners, employees and professional
advisors 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 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 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 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 in accordance with the terms specified in
Schedule 3 attached hereto. 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-1 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. Leonard as
evidenced by the Purchase Note (as defined in the
Affiliation Agreement), OMEGA hereby pledges, grants,
bargains, assigns and transfers to Dr. Leonard 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. Leonard, 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-2 and incorporated herein
by this reference in order that Dr. Leonard 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.
Leonard.
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. Leonard 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.
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.
Leonard 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. Leonard and each Orthodontist (if any) providing
services to enter into an agreement with the New PC that
upon termination of Dr. Leonard's or such Orthodontist's
relationship with the New PC, for any reason, tail insurance
coverage will be purchased by Dr. Leonard 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. Leonard
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. Leonard 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) 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;
provided, however, that no indemnification shall be required
hereby to the extent that the New PC's obligation is
satisfied by an insurance payment. 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, (i)
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) or (ii) as a result of any merger or
acquisition involving the MSO, OMEGA or any entity that
controls, is controlled by or is under common control with
either or both of them to which the New PC is not a party or
any litigation not involving the New PC or its operation
during the Term hereof; provided, however, that no
indemnification shall be required hereby to the extent that
the MSO's obligation is satisfied by an insurance payment..
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. Leonard 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. Leonard or any Orthodontist
breaches or defaults under his or her Employment Agreement
and the New PC does not cause Dr. Leonard 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 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. Leonard 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.
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:
1455 Old McDonough Road
Conyers, Georgia 30207
Attn: Leon J. Leonard, 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, 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.
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.
INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have
executed this agreement as of the day and year first above
written.
NEW PC:
By: /s/ Leon J. Leonard
Name: Leon J. Leonard
Title: President
MSO:
OMEGA ORTHODONTICS OF
CONYERS, INC.
By: /s/ Robert J.
Schulhof
Name: Robert J. Schulhof
Title: President
OMEGA:
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J.
Schulhof
Name: Robert J. Schulhof
Title: President
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Leon J. Leonard, D.D.S.
1455 Old McDonough Road
Conyers, GA 30207
SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
The office space and related leasehold improvements which
the MSO will provide to the New PC pursuant to Section 2.2
of the Management Services Agreement to which this Schedule
2 is attached are located at 1455 Old McDonough Road,
Conyers, Georgia 30209 and 4122 Tate Street, Covington,
Georgia 30209. The related fixtures, furniture, furnishings
and equipment are set forth on the attached asset list. The
services to be provided by the MSO to the New PC in relation
to the Orthodontic Offices are the repair, 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 also provide telephone, facsimile
transmission, printing, duplicating and transcribing
services as needed, as well as all laundry, linen and
uniforms.
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 Percent (70%) of the Practice Revenues, and the
New PC shall be entitled to Thirty Percent (30%) of such
Practice Revenues, except as may otherwise be provided in
this Schedule 3 or as the parties may otherwise agree from
time to time in writing. At the end of each calendar year
during the term of this Agreement, the MSO shall provide the
New PC with an unaudited internal accounting of MSO
Expenses, prepared in accordance with the accrual method of
accounting. If 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 calendar year,
fifty (50%) percent of such difference shall be returned by
the MSO to the New PC as a profit incentive rebate (the
"Rebate"). If such MSO Expenses are more than fifty (50%)
percent of the Practice Revenues for such calendar year,
fifty (50%) percent of such excess will be charged to the
New PC and recorded as a liability to be set off against
future Rebates; provided, however, that the full amount of
such liability shall be paid to the MSO within 15 days
following the termination of this Agreement and provided
further that the above compensation provisions shall become
null and void and the formula set forth in the following
paragraph shall take effect beginning with the first day of
the calendar year following the calendar year in which MSO
Expenses exceeded fifty (50%) percent of the Practice
Revenues:
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
calendar year during the term of this Agreement, the MSO
shall provide the New PC with an unaudited internal
accounting of MSO Expenses, prepared in accordance with the
accrual method of accounting. If 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
calendar year, fifty (50%) percent of such difference shall
be returned by the MSO to the New PC as a profit incentive
rebate (the "Rebate"). If such MSO Expenses are more than
sixty (60%) percent of the Practice Revenues for such
calendar year, fifty (50%) percent of such excess will be
charged to the New PC and recorded as a liability to be set
off against future Rebates; provided, however, that the full
amount of such liability shall be paid to the MSO within 15
days following the termination of this Agreement.
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.
EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASES
EXHIBIT B
PRACTICE PROVIDERS
Dr. Leon J. Leonard
1455 Old McDonough Road
Conyers, Georgia 30209
EXHIBIT C
New PC'S AFFIDAVIT
AFFIDAVIT
I, Leon J. Leonard, D.D.S., declare:
I am an orthodontist, duly licensed in the State of
Georgia and I practice through a professional corporation
under the name Leon J. Leonard, D.M.D., P.C. (the "New
PC").
I have had substantial experience in the practice of
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
January 1, 1998, between the New PC and Omega Orthodontics
of Conyers, Inc. (the "MSO") concerning the duties,
responsibilities and obligations undertaken by the MSO in
managing and operating all non-orthodontic aspects of the
Orthodontic Offices as contemplated by the Agreement.
I have reviewed the prior operating financial
statements of the orthodontic offices located at 1455 Old
McDonough Road, Conyers, Georgia 30207 and 4122 Tate Street,
Covington, Georgia 30209 and an operating budget and
estimated income of the Orthodontic Offices, which, in my
opinion, can reasonably be expected from the operation of
said offices.
In my opinion, based upon my experience, a Management
Fees in the range of Seventy Percent (70%) to 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 Thirty
Percent (30%) to 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
_____________, 199_.
___________________________
Leon J. Leonard, D.D.S.
STATE OF GEORGIA
___________________, ss
________________, 199_
Then personally appeared the above-named Leon J.
Leonard, D.D.S. and acknowledged the foregoing Affidavit to
be his free act and deed.
[SEAL]
____________________________
Notary Public
My Commission Expires:
EXHIBIT D
SECURITY AGREEMENTS
Exhibit D-1
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 1st day
of January 1998, by _____________________, PC, a Georgia
corporation (the "New PC"), and Leon J. Leonard, D.D.S.
("Dr. Leonard") who is duly licensed to practice
orthodontics in the state of Georgia (the "State") and Omega
Orthodontics of Conyers, 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. Leonard 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 obligations
of a secured party under the Uniform Commercial Code as
adopted in 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;
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 Conyers, 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:
1455 Old McDonough Road
Conyers, Georgia 30207
Attn: Leon J. Leonard, 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.
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.
14. Counterparts. This Security 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 caused
this Agreement to be duly executed, as of the day and year
first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS
OF
CONYERS, INC.
By:____________________________
By:__________________________
Name: Leon J. Leonard Name:
Robert J. Schulhof
Title: President Title:
President
DR. LEONARD
_______________________________
Leon J. Leonard, D.D.S.
Exhibit D-
2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 1st day
of January 1998, by OMEGA Orthodontics, Inc., a Delaware
corporation ("OMEGA"), and Leon J. Leonard, D.D.S. ("Dr.
Leonard") who is duly licensed to practice orthodontics in
the state of Georgia (the "State"), with reference to the
following facts:
WHEREAS, pursuant to an Affiliation Agreement and Asset
Purchase Agreement (the "Affiliation Agreement") dated as of
________ __, 199__ by and between Dr. Leonard and OMEGA 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. Leonard under the Purchase Note
(as defined in the Affiliation Agreement) (the
"Obligations"), OMEGA agreed to pledge, grant, bargain,
assign and transfer to Dr. Leonard 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.
Leonard's performance under the Affiliation Agreement 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.
Leonard 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.
Leonard 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. Leonard shall
release his security interest hereunder, and will deliver to
OMEGA a release.
4. Realization of Collateral. Dr. Leonard 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. 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 Dr. Leonard 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.
Leonard, 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. Leonard is authorized as
the agent of the OMEGA to sign any such instruments. Upon
the request of Dr. Leonard, OMEGA agrees to pay all filing
fees and to reimburse Dr. Leonard 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.
Leonard 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. Leonard 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.
Leonard shall apply the proceeds in the order set forth
below in Paragraph 6 hereof. Dr. Leonard may have resort to
the Collateral or any portion thereof with no requirements
on the part of Dr. Leonard 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. Leonard in the following order:
A. To the payment of the costs and expenses of
collection incurred by Dr. Leonard, including, without
limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by the Dr. Leonard
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.
Leonard 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 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.
Leonard from time to time in writing.
Notices to Dr. Leonard shall be given at:
1455 Old McDonough Road
Conyers, GA 30207
Attn: Leon J. Leonard, D.D.S.
or other such addresses as may be delivered by Dr. Leonard
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. Leonard any additional
documents which may be reasonably necessary to give effect
fully to the security interest granted to Dr. Leonard
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.
OMEGA:
OMEGA ORTHODONTICS INC.
By:____________________________
Name:
Title:
DR. LEONARD:
_______________________________
Leon J. Leonard, D.D.S.
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
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.
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 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.
EXHIBIT 10.33
-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 1st day
of January, 1998 by and among Leon J. Leonard, D.M.D., P.C., a
professional corporation (the "New PC") incorporated under the
laws of the State of Georgia (the "State"); Leon J. Leonard,
D.D.S. ("Dr. Leonard") who is duly licensed to practice
orthodontics in the State; Omega Orthodontics, Inc., a Delaware
corporation ("OMEGA"); and Omega Orthodontics of Conyers, 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 acquired certain assets of Dr. Leonard pursuant
to that certain Affiliation Agreement and Asset Purchase
Agreement (the "Affiliation Agreement") dated as of December 29,
1997 by and among OMEGA and Dr. Leonard.
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. Leonard 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. Leonard 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.
Leonard'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. Leonard has agreed to grant to the MSO, and the
MSO desires to acquire from Dr. Leonard 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.
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. Leonard, 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. Leonard 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. Leonard 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:
(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. Leonard 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 fair
market value of the assets, tangible and intangible, described in
Clauses (a) and (b) of this Section 3 (collectively, the "Call
Price"). For purposes of this Section 3, the "fair market value"
of such assets shall be determined by an independent appraiser
acceptable to, and appointed by, the MSO and the New PC. In the
event that the MSO and the New PC cannot agree on an independent
appraiser, the fair market value of such assets shall be
determined by three independent appraisers, one of whom shall be
appointed by the MSO, one of whom shall be appointed by the New
PC and the third of whom shall be appointed by mutual agreement
of the two appointed appraisers. Within sixty (60) days after
the appointment of the third appraiser, the three appraisers
shall each submit in writing their determination of fair market
value of such assets to each of the MSO and the New PC, and the
fair market value of such assets shall be conclusively determined
by taking the numerical average of the two fair market value
determinations which are closest in amount. The cost of
obtaining these appraisals shall be paid one-half by the MSO and
one-half by the New PC.
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 LLP, 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. Leonard, a
combination of cash, forgiveness of amounts due to Dr. Leonard
under the Purchase Note and/or return of the shares of Omega
Common Stock received by Dr. Leonard under Section 1.1(a)(iii) of
the Affiliation Agreement (the value of such shares 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 of the Call
Option Notice or the Put Option Notice, as the case may be), 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. Leonard 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. Leonard:
(i) the death of Dr. Leonard;
(ii) if Dr. Leonard 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. Leonard 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. Leonard 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. Leonard becomes hospitalized for alcohol or
drug abuse;
(vi) if Dr. Leonard is convicted of a felony;
(vii) if Dr. Leonard 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. Leonard'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. Leonard 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. Leonard 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. Leonard and such
involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Leonard 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. Leonard retires within the meaning of
Paragraph (c) of this Section 5; or
(xiii) if Dr. Leonard 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. Leonard from performing his duties competently and
adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Leonard's ability to practice
orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Leonard shall
occur on the date when Dr. Leonard 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. Leonard(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. Leonard 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. Leonard, Dr.
Leonard 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.
Leonard 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. Leonard 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. Leonard 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. Leonard
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. Leonard (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. Leonard.
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. Leonard's Estate.
(i) Upon the death of Dr. Leonard and receipt of
notice of a Successor Designation Exercise Notice, Dr. Leonard's
personal representative shall apply for and obtain any necessary
court approval or confirmation of the sale of Dr. Leonard's
shares of Capital Stock pursuant to this Agreement. The
representative of the estate of Dr. Leonard 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. Leonard's spouse, if any,
shall not be considered the death of Dr. Leonard for purposes of
this Agreement.
(iii) The estate of Dr. Leonard 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. Leonard to transfer to the Designated Successor
full legal and equitable tax-free title to the Capital Stock of
Dr. Leonard.
(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, 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.
Leonard hereby consents to the acquisition and maintenance in
force, at Omega's expense, of a disability insurance policy and a
life insurance policy on Dr. Leonard ("Insurance Policies"). The
life insurance policy may be in an aggregate face amount of up to
three times Dr. Leonard's income, as shown on the W-2 Form
prepared by the New PC for the most recent calendar year. Dr.
Leonard 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) INTENTIONALLY OMITTED
(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. Leonard 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. Leonard 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. Leonard 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. Leonard 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. Leonard. Upon
execution of this Agreement, Dr. Leonard 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.
Leonard. 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
January 1, 1998, 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. Leonard.
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. Leonard,
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. Leonard
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. Leonard 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. Leonard 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. Leonard: Leon J. Leonard, D.D.S.
1455 Old McDonough Road
Conyers, GA 30209
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. Leonard 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.
18. Alternative Dispute Resolution.
18.1 General.
(a) If a dispute arises under this Agreement (other than in
connection with a determination of fair market value under
Section 3 hereof) 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.
INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the New PC, Dr. Leonard, 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"
LEON J. LEONARD, D.M.D., P.C.,
a Georgia corporation
By: /S/ Leon J. Leonard
Leon J. Leonard, President
DR. LEONARD
/s/ Leon J. Leonard, D.D.S.
Leon J. Leonard, D.D.S.
"MSO"
OMEGA ORTHODONTICS OF CONYERS, INC.
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President and
Chief Executive Officer
SPOUSAL JOINDER AND CONSENT
I am the spouse of Leon J. Leonard, D.D.S., the sole
Stockholder of ______________, PC. 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 had the opportunity to retain
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 ,
1998.
Signature:
Printed or Typed Name:
EXHIBIT A
ORTHODONTIC OFFICES
The office space and related leasehold improvements constituting
the Orthodontic Offices are located at 1455 Old McDonough Road,
Conyers, Georgia 30207 and 1422 Tate Street, Covington, Georgia
30209..
EXHIBIT B
STOCK
The authorized capital stock of the New PC is 100,000 shares
of common stock, $1.00 par value per share. 500 shares of the
common stock of the New PC are issued and are outstanding, all of
which shares are evidenced by certificate No. 1 issued in the
name of Leon J. Leonard, D.M.D.
EXHIBIT C
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is made as of
this day of
_______________, ____ by and between ____________________, D.D.S.
("Dr. _____________"), who is duly licensed to practice
orthodontics in the state of _____________, and
___________________, a professional corporation (the "New PC")
incorporated under the laws of the State.
All capitalized terms used herein and not otherwise
expressly defined shall have the same meanings set forth in that
certain Stock Put/Call Option and Successor Designation Agreement
("Stock Agreement") dated ____________, 199_ by and among Dr.
__________________, the New PC, Omega Orthodontics, Inc., a
Delaware corporation ("Omega") and Omega Orthodontics of
____________________, Inc., a Delaware corporation (the "MSO")
which is a wholly owned subsidiary of Omega.
RECITALS
A. Dr. _________________ is the sole owner of the Capital
Stock of the New PC and desires to transfer all of his right,
title and interest in and to such Capital Stock pursuant to
Section 8 of the Stock Agreement to the Purchaser.
B. The Purchaser has agreed to join the Stock Agreement
and to enter into an employment agreement with the New PC on
terms and conditions acceptable to and approved by the MSO.
C. As a condition to the transfer by Dr. ______________ of
his Capital Stock to the Purchaser pursuant to Section 8 of the
Stock Agreement, Dr. ______________ has agreed to enter into an
agreement in the form of this Agreement to be delivered to the
New PC upon the closing of the transfer of his Capital Stock
pursuant to Section 8 of the Stock Agreement.
NOW, THEREFORE, in consideration of the foregoing promises
and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
1. Dr. _______________'s Covenants . During the term of
this Agreement in the Service Area described in Section 4 below,
Dr. __________________ shall not (directly or indirectly through
any business, enterprise, venture, partnership, corporation or
any other entity controlled directly or indirectly by Dr.
_______________, whether alone or as a partner, stockholder,
creditor or otherwise):
(a) Provide orthodontic or other dental services, or
engage, participate, aid, assist, or hold any interest in any
business or the provision of any managed care plan service which
is, or as of Dr. ______________'s engagement or participation,
would become, competitive with the New PC's orthodontic practice
business;
(b) Engage or contract (other than with the MSO or any
of the MSO's affiliates) for the provision of any management
services for Dr. _____________ or any person employed or under
contract to Dr. ________________ (as applicable) which are the
same as or substantially similar to any of the services that the
MSO or any of the MSO's affiliates furnishes;
(c) Solicit or assist any other person to solicit any
business relating to a competing line of business (other than for
the New PC or any of its affiliates) from any present or
potential patient, customer (including all third party payors) of
Dr. _________________, the New PC or any of their respective
affiliates;
(d) Commit any other act or assist others to commit
any other act which might injure the business of the New PC, the
MSO or any of their respective affiliates;
(e) Directly or indirectly employ, contract, solicit
or encourage any employee or other person under contract with
the New PC, the MSO or any of their respective affiliates to
leave the employ of any such entity; and
(f) Directly or indirectly solicit, request, advise,
or encourage any present or future supplier, patient, customer or
employee of the New PC, the MSO or their respective affiliates to
withdraw, curtail or cancel its business dealings with the New
PC, the MSO or their respective affiliates, or take any actions
that might impair the relations of the New PC, the MSO or any of
their respective affiliates and their respective suppliers,
patients, customers, employees or others.
2. Dr. _______________'s Representations. Dr.
______________ specifically acknowledges, represents, and
warrants that: (i) his covenants set forth in this Agreement are
being given in connection with the sale of the Capital Stock to
the Purchaser pursuant to Section 8 of the Stock Agreement; (ii)
such covenants are reasonable and necessary to protect the
legitimate interests of the New PC, the MSO and Omega; and (iii)
the New PC, the MSO and Omega would not have consented to such
sale in the absence of such restrictions. Dr. _______________
acknowledges that this Agreement is subject to all
representations, warranties and covenants of Dr. _______________
in the Stock Agreement.
3. Service Area. The Service Area to which Dr.
________________'s covenants in Section 1 apply is defined as the
area within a fifteen (15) mile radius (or the maximum radius
permitted by law, if less) of each orthodontic office or other
facility owned, operated or managed by Dr. ________________, the
New PC, the MSO, Omega or their respective affiliates now
existing or hereafter established.
4. Term . The term of this Agreement commences as of the
day and year first above written and continues for twenty-four
(24) months.
5. Payment. As consideration for Dr. ________________'s
agreement not to compete and other covenants herein, the New PC
shall pay Dr. ________________ upon the execution of this
Agreement by the New PC the amount of One Thousand Dollars
($1,000).
6. Remedies. In the event of a breach by Dr.
_______________ of this Agreement, the New PC shall be entitled
to receive, on behalf of the MSO, from Dr. _______________, in
addition to other remedies and not by way of an election of
remedies, liquidated damages equal in amount to the greater of
(a) Dr. _________________'s income, as shown on the W-2 form
prepared by the New PC for the most recent calendar year or (b)
$300,000. Any amounts received by the New PC pursuant to the
prior sentence shall be paid to the MSO by the New PC immediately
following receipt by the New PC. Should a court fail to enforce
the liquidated damages provision set forth in the first sentence
of this
Section 6, the parties acknowledge and agree that, absent such
liquidated damages, a breach by Dr. ________________ of this
Agreement will cause irreparable damage to the New PC, the exact
amount of which will be difficult to ascertain, and that remedies
at law for any such breach will be inadequate. Accordingly, Dr.
________________ agrees that in such case, the New PC shall be
entitled to injunctive relief and Dr. _______________ agrees not
to assert in any proceeding that the New PC has an adequate
remedy at law. Dr. ___________________ shall pay the reasonable
fees and expenses, including attorneys fees, incurred by the New
PC or any successor or assign in enforcing this Agreement.
7. Third Party Beneficiaries. The parties expressly
understand and agree that the MSO and Omega are third party
beneficiaries of this Agreement and shall be entitled to all of
the rights and remedies provided herein to the New PC and shall
be entitled to enforce the terms of this Agreement.
8. Miscellaneous .
(a) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties and
their respective heirs (as applicable), legal representatives,
and permitted successors and assigns. No party may assign this
Agreement or the rights, interests or obligations hereunder;
provided, however, that the New PC may assign its rights,
interests and obligations to the MSO, Omega and their affiliates
without the consent of Dr. _____________. Any assignment or
delegation in contravention of this Section shall be null and
void.
(b) 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.
(c) 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.
(d) Amendment. This Agreement may not be amended
except in a writing executed by all parties.
(e) Time of Essence. Time is expressly made of the
essence of this Agreement and each and every provision hereof of
which time of performance is a factor.
(f) Notices. Any notices required or permitted to be
given hereunder by any party to the other 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 specify
in writing:
If to Dr. ________________: Dr. ______________________
______________________
______________________
If to the New PC: ________________________
________________________
________________________
(g) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
__________________.
(h) Severability. If any provision or portion of this
Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this Agreement will
nevertheless continue in full force and effect and shall not be
invalidated or rendered unenforceable or otherwise adversely
affected, unless such invalidity or unenforceability would defeat
an essential business purpose of this Agreement. Without
limiting the generality of the foregoing, if the provisions of
this Agreement shall be deemed to create a restriction, which is
unreasonable as to either duration or geographical area or both,
the parties agree that the provisions of this Agreement shall be
enforced for such duration and in such geographic area as any
court of competent jurisdiction on may determine to be
reasonable.
(i) Attorneys' Fees. Should either the New PC or Dr.
________________ institute any action or procedure to enforce
this Agreement or any provision hereof, 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 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.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement of the day and year first written above.
"DR. ________________" "NEW PC"
_______________________________
______________________________ By:
___________________________
President
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
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.
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 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.
EXHIBIT 10.34
NON-NEGOTIABLE PROMISSORY NOTE
$233,333.00 Acton, California
December 30, 1997
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware
corporation ("Omega"), promises to pay to Dr. Leon Leonard ("Dr.
Leonard") at 1455 Old McDonough Road, Conyers, Georgia 30207 or
other location specified by Dr. Leonard in writing, Two Hundred
Thirty Three Thousand Three Hundred Thirty Three Dollars
($233,333.00) 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 with
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.
Leonard, 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 without penalty or premium, upon
written notice to Dr. Leonard.
5. Expenses. Omega agrees to pay all expenses, including
reasonable attorney's fees, which Dr. Leonard may incur in
effecting collection of this Note upon default or at maturity.
6. Delays. Dr. Leonard 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. Leonard. 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. Leonard 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.
Leonard in writing.
10. Governing Law. This Note shall be deemed to be a
Georgia instrument, and all rights and obligations hereunder
shall be governed by the laws of the State of Georgia.
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.
/s/ Steven E. Borgeson By: /s/ Robert J.
Schulhof
Robert J. Schulhof,
President
EXHIBIT 10.35
iv
MANAGEMENT SERVICES AGREEMENT
BETWEEN
David W. Longworth, P.C. (the "New PC")
AND
Omega Orthodontics of Watertown, Inc.
(the "MSO")
AND
Omega Orthodontics, Inc.
("OMEGA")
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM 2
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 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 11
ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT 11
5.3. No Warranty. 14
ARTICLE 6 COMPENSATION 14
ARTICLE 7 SECURITY INTEREST 15
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 17
9.3 Tail Insurance Coverage 17
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 20
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP 20
ARTICLE 13 MISCELLANEOUS 20
13.1 Access to Records 21
13.2 Patient Records. 21
13.3 The New PC's Control Over the Orthodontic Practice 21
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION 21
14.1 Alternative Dispute Resolution 21
14.2 Waiver of Jury. 22
ARTICLE 15 GENERAL PROVISIONS 22
15.1 Notices 22
15.2 Confidentiality 23
15.3 Contract Modifications for Prospective Legal Events 23
15.4 Remedies Cumulative 23
15.5 No Obligation to Third Parties 23
15.6 Entire Agreement 23
15.7 Assignment. 24
15.8 Attorneys' Fees 24
15.9 Governing Law 24
15.10 Events Excusing Performance 24
15.11 Compliance with Applicable Laws 24
15.12 Language Construction 24
15.13 Amendments 24
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 NEW PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENTS
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 1st day of January,
1998, by and between David W. Longworth, P.C., a professional
corporation (the "New PC") incorporated under the laws of the
State of South Dakota (the "State"), and Omega Orthodontics of
Watertown, 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 David Longworth, D.D.S. ("Dr. Longworth") who
is duly licensed to practice orthodontics in the State have
entered into that certain Affiliation Agreement and Asset
Purchase Agreement (the "Affiliation Agreement") dated as of
January 1, 1998, pursuant to which OMEGA acquired certain assets
of Dr. Longworth;
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. Longworth and any and
all other orthodontists who are or become affiliated with the New
PC as of or following the date hereof 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. Longworth and the Orthodontists (if any) to render
quality orthodontic care to the patients of the New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the
functions and to provide the services described in this Agreement
to assist the New PC to achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform
managerial and administrative services for the New PC and provide
office space and orthodontic facilities appropriate for rendering
general orthodontic treatment at the Orthodontic Offices upon the
following terms and conditions:
ARTICLE 1
TERM
1.1 The initial term of this Agreement shall commence on the
date first above written and continue for a period of twenty (20)
years (the "Initial Term"), subject, however, to earlier
termination in accordance with Article 10 hereof. This Agreement
shall continue for two separate and successive ten year periods
(each a "Renewal Term" and collectively with the Initial Term,
the "Term") unless the MSO otherwise elects upon six months
written notice to the New PC prior to expiration of the Initial
Term or any then effective Renewal Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide 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,
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. Longworth 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. Longworth 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. Longworth 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. Longworth 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. Longworth 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. Longworth 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;
(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. The New PC shall be responsible for preparing and filing
its own Federal, state and local tax returns. 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.
Longworth 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. Longworth
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 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. Longworth and all Orthodontists
and the other Practice Providers and all orthodontic care
rendered to patients shall be rendered by Dr. Longworth 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. Longworth and the Orthodontists and
the other Practice Providers acting under the supervision and
control of Dr. Longworth 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. Longworth 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.
Longworth 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. Longworth and all the Orthodontists
employed by the New PC participate in such continuing education
as is necessary for Dr. Longworth 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. Longworth 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.
Longworth 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. Longworth 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. Longworth 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. Longworth'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. Longworth's or such Orthodontist's
Employment Agreement with the New PC, Dr. Longworth 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. Longworth'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.
Longworth'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.
Longworth 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.
Longworth 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.
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 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 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
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 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. Longworth 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.
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. Longworth 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.
Longworth and each Orthodontist (if any) providing services to
enter into an agreement with the New PC that upon termination of
Dr. Longworth's or such Orthodontist's relationship with the New
PC, for any reason, tail insurance coverage will be purchased by
Dr. Longworth 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.
Longworth 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. Longworth 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 Option and
Successor Designation Agreement") dated as of even date herewith,
by and among the New PC, Dr. Longworth 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. Longworth or any Orthodontist breaches or
defaults under his or her Employment Agreement and the New PC
does not cause Dr. Longworth 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
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.
Longworth 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.
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:
6 South Broadway
Watertown, South Dakota 57201
Attn: David Longworth, 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, 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, including, without limitation, that certain
Interim Management Agreement between OMEGA and Dr. Longworth
dated as of November 30, 1997. 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.
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.
NEW PC:
DAVID W. LONGWORTH, P.C.
By: /s/ David Longworth
Name: David Longworth
Title: President
MSO:
OMEGA ORTHODONTICS OF
WATERTOWN, INC.
By: /s/ Robert J. Schulhof
Name: Robert J. Schulhof
Title: President
OMEGA:
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Name: Robert J. Schulhof
Title: President
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
David Longworth, D.D.S.
6 South Broadway
Watertown, South Dakota 57201
SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
The office space and related leasehold improvements which the MSO
will provide to the New PC pursuant to Section 2.2 of the
Management Services Agreement to which this Schedule 2 is
attached is located at 6 South Broadway, Watertown, South Dakota
57201. The related fixtures, furniture, furnishings and
equipment are set forth on the attached asset list. The services
to be provided by the MSO to the New PC in relation to the
Orthodontic Offices are the repair, 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
also provide telephone, facsimile transmission, printing,
duplicating and transcribing services as needed, as well as all
laundry, linen and uniforms.
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 such MSO Expenses are more than sixty (60%)
percent of the Practice Revenues for such twelve month period,
fifty (50%) percent of such excess will be charged to the New PC
and recorded as a liability to be set off against future Rebates.
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.
EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Dr. Longworth Attach]
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Longworth Attach]
EXHIBIT C
New PC'S AFFIDAVIT
AFFIDAVIT
I, David Longworth, D.D.S., declare:
I am an orthodontist, duly licensed in the State of South Dakota
and I practice through a professional corporation under the name
David W. Longworth, P.C.(the "New PC").
I have had substantial experience in the practice of
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 January 1, 1998, between
the New PC and Omega Orthodontics of Watertown, 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 6 South Broadway, Watertown, South
Dakota 57201 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 December, 1997.
___________________________
David Longworth, D.D.S.
STATE OF SOUTH DAKOTA
___________________, ss _______________________, 199_
Then personally appeared the above-named David Longworth, D.D.S.
and acknowledged the foregoing Affidavit to be his free act and
deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
EXHIBIT D
SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 1st day of January
1998, by David W. Longworth, P.C., a South Dakota corporation
(the "New PC"), and David Longworth, D.D.S. ("Dr. Longworth") who
is duly licensed to practice orthodontics in the State and Omega
Orthodontics of Watertown, 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. Longworth 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 obligations of a
secured party under the Uniform Commercial Code as adopted in the
state of South Dakota (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;
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 Watertown, 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:
6 South Broadway
Watertown, South Dakota 57201
Attn: David Longworth, 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.
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.
14. Counterparts. This Security 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 caused this
Agreement to be duly executed, as of the day and year first
hereinabove written.
NEW PC: MSO:
DAVID W. LONGWORTH, P.C. OMEGA ORTHODONTICS OF
WATERTOWN, INC.
By:____________________________
By:__________________________
Name: David Longworth Name: Robert J.
Schulhof
Title: President Title: President
DR. LONGWORTH
_______________________________
David Longworth, D.D.S.
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
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.
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 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.
EXHIBIT 10.36
20
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 1st day
of January, 1998 by and among David W. Longworth, P.C., a
professional corporation (the "New PC") incorporated under the
laws of the State of South Dakota (the "State"); David Longworth,
D.D.S. ("Dr. Longworth") who is duly licensed to practice
orthodontics in the State; Omega Orthodontics, Inc., a Delaware
corporation ("OMEGA"); and Omega Orthodontics of Watertown, 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 acquired certain assets of Dr. Longworth pursuant
to that certain Affiliation Agreement and Asset Purchase
Agreement (the "Affiliation Agreement") dated as of January 1,
1998 by and among OMEGA and Dr. Longworth.
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. Longworth 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. Longworth 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. Longworth'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. Longworth has agreed to grant to the MSO, and the
MSO desires to acquire from Dr. Longworth 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.
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. Longworth, 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. Longworth 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. Longworth
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:
(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. Longworth 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. Longworth under Section
1.1(a)(i) of the Affiliation Agreement, plus (y) the original
principal amount of the Purchase Note issued to Dr. Longworth
under Section 1.1(a)(ii) of the Affiliation Agreement, plus (z)
the value of that number of shares of Omega Common Stock issued
to Dr. Longworth under Section 1.1(a)(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 LLP, 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. Longworth,
a combination of cash, forgiveness of amounts due to Dr.
Longworth under the Purchase Note and/or return of the shares of
Omega Common Stock received by Dr. Longworth under Section
1.1(a)(iii) of the Affiliation Agreement, such shares to be
valued as provided for in Section 3 hereof, 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.
Longworth 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. Longworth:
(i) the death of Dr. Longworth;
(ii) if Dr. Longworth 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. Longworth 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. Longworth 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. Longworth becomes hospitalized for alcohol
or drug abuse;
(vi) if Dr. Longworth is convicted of a felony;
(vii) if Dr. Longworth 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. Longworth'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. Longworth 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. Longworth 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. Longworth and such
involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Longworth 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. Longworth retires within the meaning of
Paragraph (c) of this Section 5; or
(xiii) if Dr. Longworth 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 thirty (30) days, (i)
prevents Dr. Longworth from performing his duties competently and
adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Longworth's ability to practice
orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Longworth
shall occur on the date when Dr. Longworth 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. Longworth (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. Longworth 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.
Longworth, Dr. Longworth 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.
Longworth 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. Longworth 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. Longworth
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. Longworth
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. Longworth (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. Longworth.
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. Longworth's Estate.
(i) Upon the death of Dr. Longworth and receipt
of notice of a Successor Designation Exercise Notice, Dr.
Longworth's personal representative shall apply for and obtain
any necessary court approval or confirmation of the sale of Dr.
Longworth's shares of Capital Stock pursuant to this Agreement.
The representative of the estate of Dr. Longworth 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. Longworth's spouse, if any,
shall not be considered the death of Dr. Longworth for purposes
of this Agreement.
(iii) The estate of Dr. Longworth 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. Longworth to transfer to the Designated Successor
full legal and equitable tax-free title to the Capital Stock of
Dr. Longworth.
(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, 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.
Longworth hereby consents to the acquisition and maintenance in
force of a disability insurance policy and a life insurance
policy on Dr. Longworth ("Insurance Policies"). The life
insurance policy may be in an aggregate face amount of up to
three times Dr. Longworth's income, as shown on the W-2 Form
prepared by the New PC for the most recent calendar year. Dr.
Longworth 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. Longworth 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. Longworth 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. Longworth 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. Longworth 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. Longworth. Upon
execution of this Agreement, Dr. Longworth 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. Longworth. 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
January 1, 1998, 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. Longworth.
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. Longworth,
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. Longworth
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. Longworth 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. Longworth 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. Longworth: David. Longworth, D.D.S.
6 South Broadway
Watertown, South Dakota 57201
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. Longworth 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.
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.
IN WITNESS WHEREOF, the New PC, Dr. Longworth, 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"
DAVID W. LONGWORTH, P.C.,
a South Dakota corporation
By: /s/ David Longworth
David Longworth, President
DR. LONGWORTH
/s/ David Longworth, D.D.S.
David Longworth, D.D.S.
"MSO"
OMEGA ORTHODONTICS OF WATERTOWN, INC.
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President and
Chief Executive Officer
SPOUSAL JOINDER AND CONSENT
I am the spouse of David Longworth, D.D.S., the sole
Stockholder of David W. Longworth, P.C. 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 December, 1997.
Signature:
Printed or Typed Name:
EXHIBIT A
ORTHODONTIC OFFICES
The office space and related leasehold improvements
constituting the Orthodontic Offices is located at 6 South
Broadway, Watertown, South Dakota 57201.
EXHIBIT B
STOCK
[Dr. Longworth attach]
EXHIBIT C
NON-COMPETITION AGREEMENT
[Omega to provide]
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
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.
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 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.
EXHIBIT 10.37
2
NON-NEGOTIABLE PROMISSORY NOTE
$178,700.00 Acton, California
January 1, 1998
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware
corporation ("Omega"), promises to pay to David W. Longworth
Trust and Jacquelyn L. Longworth Trust ("Dr. Longworth") at 6
South Broadway, Watertown, South Dakota 57201 or other location
specified by Dr. Longworth in writing, One Hundred Seventy Eight
Thousand Seven Hundred Dollars ($178,700.00) 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 with 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.
Longworth, 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 without penalty or premium, upon
written notice to Dr. Longworth.
5. Expenses. Omega agrees to pay all expenses, including
reasonable attorney's fees, which Dr. Longworth may incur in
effecting collection of this Note upon default or at maturity.
6. Delays. Dr. Longworth 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. Longworth. 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. Longworth 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.
Longworth 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.
INTENTIONALLY LEFT BLANK
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.
/s/ Steven E. Borgeson By: /s/ Robert J.
Schulhof
Name: Steven E. Borgeson Robert J.
Schulhof,
President
EXHIBIT 10.38
iv
MANAGEMENT SERVICES AGREEMENT
BETWEEN
Rodney A. Gray, D.D.S., M.S., Ltd.
(the "New PC")
AND
Omega Orthodontics of Reno, Inc.
(the "MSO")
AND
Omega Orthodontics, Inc.
("OMEGA")
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM 2
ARTICLE 2 DUTIES OF THE MSO 2
2.1 General 2
2.2 Endodontic 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 4
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 Endodontists and Rendering of Patient
Care 9
3.3 Professional Services 9
3.4 Records 9
3.5 Professional Expenses 10
3.6 Professional Liability Insurance 10
3.7 Employment Agreement 11
3.8 Confidentiality 11
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION 12
ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT 12
5.3. No Warranty. 15
ARTICLE 6 COMPENSATION 15
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 18
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 20
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP 21
ARTICLE 13 MISCELLANEOUS 21
13.1 Access to Records 21
13.2 Patient Records. 21
13.3 The New PC's Control Over the Endodontic Practice 22
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION 22
14.1 Alternative Dispute Resolution 22
14.2 Waiver of Jury. 23
ARTICLE 15 GENERAL PROVISIONS 23
15.1 Notices Error!
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 23
15.17 Counterparts 23
SCHEDULE 1 THE ENDODONTISTS
SCHEDULE 2 ENDODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ENDODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C NEW PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENTS
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 1st day of January,
1998, by and between Rodney A. Gray, D.D.S., M.S., Ltd., a
professional corporation (the "New PC") incorporated under the
laws of the State of Nevada (the "State"), and Omega Orthodontics
of Reno, Inc., a Delaware corporation (the "MSO"), and Omega
Orthodontics, Inc., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing
services to endodontic and other dental specialty 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
such practices and are provided directly or indirectly through
management service organizations such as the MSO;
WHEREAS, OMEGA and Rodney A. Gray, D.D.S. ("Dr. Gray") who is
duly licensed to practice endodontics in the State have entered
into that certain Affiliation Agreement and Asset Purchase
Agreement (the "Affiliation Agreement") dated as of January 1,
1998, pursuant to which OMEGA acquired certain assets of Dr.
Gray;
WHEREAS, the New PC owns and operates an endodontic practice
with offices located in the facilities identified in Exhibit A
(the "Endodontic Offices") and furnishes endodontic care to the
general public through the services of Dr. Gray and any and all
other Endodontists who are or become affiliated with the New PC
as of or following the date hereof and who are or become
subsequently named on Schedule 1 hereto (individually, an
"Endodontist" and collectively, the "Endodontists");
WHEREAS, the MSO was formed and acquired to provide equipment,
facilities and personnel to, and to manage the non-endodontic
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. Gray and the Endodontists (if any) to render
quality endodontic 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 endodontic facilities appropriate for rendering
general endodontic treatment at the Endodontic Offices upon the
following terms and conditions:
ARTICLE 1
TERM
1.1 The initial term of this Agreement shall commence on the
date first above written and continue for a period of twenty (20)
years (the "Initial Term"), subject, however, to earlier
termination in accordance with Article 10 hereof. This Agreement
shall continue for two separate and successive ten year periods
(each a "Renewal Term" and collectively with the Initial Term,
the "Term") unless the MSO otherwise elects upon six months
written notice to the New PC prior to expiration of the Initial
Term or any then effective Renewal Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide 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
endodontic practice at the Endodontic 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-endodontic
business affairs of the New PC and carry out the MSO's endodontic
duties under this Agreement, subject to the requirements of the
applicable provisions of State law relating to the practice of
endodontics. The MSO may perform some or all of its services at
a location other than at the Endodontic Offices.
2.2 Endodontic Office Services. The MSO shall provide or
arrange for the provision of the office space and related
leasehold improvements to constitute the Endodontic Offices and
related fixtures, furniture, furnishings, equipment and related
services (collectively, the "Endodontic 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
Endodontic 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
Endodontic 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 endodontic and treatment services. The MSO
shall be responsible for staff scheduling, provided, however,
that all Practice Providers including endodontic 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 Endodontic 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,
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 endodontics in the
State including Dr. Gray and the Endodontists (if any) and other
individuals who are employees of the New PC or otherwise under
contract with the New PC to provide dental or endodontic,
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
endodontic supplies as reasonably required by the New PC to
enable the New PC to render endodontic care to its patients
including, without limitation, all endodontic 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. Gray and the Endodontists (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 endodontic 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. Gray and the Endodontists (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
from its own funds (whether received pursuant to Section
2.8(b)(2) hereof or from other sources unrelated to the New PC)
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. Gray and all the Endodontists (if any) and
other Practice Providers);
(2) Direct costs of all employees or consultants of the
MSO who provide services at the Endodontic 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 Endodontic
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 Endodontic
Offices as well as utility expenses relating to the Endodontic
Offices;
(5) Personal property and intangible taxes assessed
against the MSO's assets used in connection with the operation of
the Endodontic Offices, commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional
Endodontists to become employed by the New PC or other endodontic
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. Gray and the Endodontists (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. Gray and the Endodontists (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;
(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.
Gray and the Endodontists (if any) on establishing and
maintaining a plan for patients' payments for endodontic services
on an installment plan basis. All marketing activities hereunder
shall be conducted in compliance with all applicable Laws
governing advertising by the endodontic 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 endodontic
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 Endodontic 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. Gray and
the Endodontists (if any) shall keep the MSO informed of
retirement goals on an ongoing basis; provided, however, that Dr.
Gray shall continue as a full time employee of the New PC,
actively engaged in the practice of endodontics, for a period of
five (5) years following the date of this Agreement, after which
time Dr. Gray may notify the MSO of his intent to retire. Upon
request of the New PC, the MSO will conduct a search for an
appropriate endodontist 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. In the event
that Dr. Gray has notified the MSO of his intent to retire and a
successor endodontist has not been designated by the MSO pursuant
to the Stock Put/Call Option and Successor Designation Agreement
of even date herewith (the "Stock Put/Call Option and Successor
Designation Agreement") by and among the New PC, Dr. Gray and the
Endodontists (if any), OMEGA and the MSO within two years of such
notice, thereafter the New PC may terminate this Agreement
pursuant to Section 10.1 hereof and exercise the "Call Option,"
as defined in and on the terms and conditions set forth in
Section 3 of the Stock Put/Call Option and Successor Designation
Agreement; provided, however, that if after such two year period
Dr. Gray locates an endodontist who has made a bona fide offer to
purchase the New PC for not less than its fair market value
(valued as if it were a traditional (i.e. not operated with a
MSO) practice holding both the clinical assets then held by the
New PC and the non-clinical assets then held by the MSO and
provided to the New PC) but is unwilling to affiliate with the
MSO and OMEGA by assuming this Agreement, OMEGA will cause the
MSO to sell such non-clinical assets directly to such endodontist
for a price equal to such fair market value of the New PC, such
price to be paid to the MSO and provided further that, if so
requested by Dr. Gray, OMEGA will provide reasonable market
financing to permit the New PC to be sold to such endodontist.
In the event that the parties have not located an endodontist to
purchase the New PC either as an OMEGA affiliate or as a
traditional practice (referred to above) within one year
following the expiration of the two year period referred to
above, Dr. Gray may repurchase the assets of the MSO identified
in Section 3(a) of the Stock Put/Call and Successor Designation
Agreement for their then book value and the MSO will cancel his
non-competition agreement.
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 Endodontic Office, in
accordance with the requirements of the Laws of the State.
3.2 Employment of the Endodontists and Rendering of Patient
Care. The New PC shall be responsible for the employment and
professional supervision of Dr. Gray and all Endodontists and the
other Practice Providers and all endodontic care rendered to
patients shall be rendered by Dr. Gray and such Endodontists.
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
Endodontic Offices designated on Schedule 2 hereof exclusively
for the practice and rendering of endodontic services, and shall
comply with all applicable Laws and all standards of endodontic
care. It is expressly acknowledged by the parties that the
endodontic practice conducted at the Endodontic Offices shall be
conducted solely by Dr. Gray and the Endodontists and the other
Practice Providers acting under the supervision and control of
Dr. Gray and the Endodontists (if any), and no other endodontist
shall be permitted to use or occupy the Endodontic Offices. The
New PC shall provide professional services to patients hereunder
in compliance at all times with ethical standards and Laws
applying to the endodontic profession. The New PC shall ensure
that Dr. Gray and each Endodontist who provides endodontic
services to patients is licensed by the State. In the event that
any disciplinary, medical malpractice or other actions are
initiated against Dr. Gray or any Endodontist 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 endodontics. 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 Endodontist
and other Practice Provider employed by the New PC. The New PC
shall ensure that Dr. Gray and all the Endodontists employed by
the New PC participate in such continuing education as is
necessary for Dr. Gray and such the Endodontist 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 Endodontists is insurable, and
that Dr. Gray and each Endodontist 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 endodontic practice to which it, Dr. Gray
and each Endodontist 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. Gray and each individual Endodontist 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. Gray or the Endodontist shall agree not to establish, operate
or provide endodontic or dental services, without the prior
written consent of both the New PC and the MSO, at any office or
facility other than the Endodontic Office. In addition, such
Employment Agreement shall provide by its own terms or by a
separate agreement that if Dr. Gray's or such Endodontist's
employment shall terminate for any reason (other than a breach of
this Agreement by the MSO or OMEGA) during the Term of this
Agreement, for a period of 24 months after the termination of Dr.
Gray's or such Endodontist's Employment Agreement with the New
PC, Dr. Gray or such Endodontist shall agree not to establish,
operate or provide endodontic 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 endodontic 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. Gray's or the Endodontist'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. Gray's or such Endodontist'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. Gray
or the breaching Endodontist 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. Gray and each
Endodontist 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 defined as "Confidential Information" in paragraph
10.7 of the Affiliation Agreement 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 (except Dr. Gray and his partners,
employees and professional advisors on a "need to know" basis)
without the express prior written consent of the MSO; and (ii) to
impose this obligation of confidentiality on Dr. Gray and his
partners, employees and professional advisors. 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 Dr. Gray and his
partners, employees and professional advisors to immediately
return to the MSO all Confidential Information, and the New PC
will not, and will cause Dr. Gray and his partners, employees and
professional advisors 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 endodontic 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 Endodontic 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 Endodontic Offices, and the leasehold improvements and
fixtures, furniture and equipment at the Endodontic 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 endodontic 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 Endodontic Office") within a radius of 15 miles of
the Endodontic Office, which Substitute Endodontic 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 Endodontic 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 Endodontic Office for
purposes of this Agreement, ab initio.
(vi) INTENTIONALLY OMITTED.
5.2 The MSO shall provide the New PC at the Endodontic 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
ENDODONTICS 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 endodontics.
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 Endodontic 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 Endodontic Offices are located. The MSO has also
assumed substantial obligations associated with the continuing
operation of the Endodontic Offices, including those of lessee,
obligor and guarantor and obligor on loans to establish and
operate the Endodontic 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 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 endodontics
and to cause all of its employees to do the same.
(b) The New PC shall provide quality services and shall cause
Dr. Gray and the Endodontists (if any) to serve the endodontic
needs of the patients of the New PC. The New PC covenants to
monitor rigorously utilization and quality of services provided
at the Endodontic Offices and shall take all steps necessary to
remedy any and all deficiencies in the efficiency or the quality
of endodontic 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 endodontic care in competition with
the practice at the Endodontic Offices, or any other endodontic
practice managed by the MSO, within a radius of 15 miles of the
Endodontic Office or of such other endodontic 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 endodontic 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.
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 endodontist for the provision of endodontic
services within a 15 mile radius of the Endodontic 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. Gray and each of the Endodontists
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 Endodontic Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Gray
and each Endodontist (if any) providing services to enter into an
agreement with the New PC that upon termination of Dr. Gray's or
such Endodontist's relationship with the New PC, for any reason,
tail insurance coverage will be purchased by Dr. Gray or such
Endodontist. Such provisions may be contained in an employment
agreement, restrictive covenant agreement or other agreement
entered into by the New PC and Dr. Gray or the Endodontist, 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. Gray or each
such Endodontist.
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 endodontic
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.
(3) In the event that, pursuant to Section 2.19 hereof,
Dr. Gray has notified the MSO of his intent to retire and a
successor endodontist has not been designated by the MSO pursuant
to the Stock Put/Call Option and Successor Designation Agreement
within two years of such notice.
Upon termination of this Agreement by the Endodontic 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 the Stock Put/Call Option and Successor
Designation Agreement.
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 endodontic
services on a full-time basis consistent with its pattern of
practice in the immediately preceding calendar year (other than
as a result of the death or disability of Dr. Gray, neither of
which shall permit the MSO to terminate this Agreement) 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. Notwithstanding the
foregoing, the parties understand and agree that in no event
shall the retirement of Dr. Gray following the designation of a
successor endodontist pursuant to the Stock Put/Call Option and
Successor Designation Agreement constitute grounds for
termination under this Section 10.2(b).
(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. Gray or any Endodontist breaches or
defaults under his or her Employment Agreement and the New PC
does not cause Dr. Gray or such Endodontist 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
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 Endodontic Practice.
Notwithstanding the authority granted to the MSO herein, the MSO
and the New PC agree that the New PC, personally or through Dr.
Gray or any of its Endodontists (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 endodontic 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 endodontic
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 independent accountants then
employed by the MSO as to the calculation of any and all fees
owed by any party to another party 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 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. Gray, to:
Rodney A. Gray, D.D.S.
4101 Caughlin Square - Suite 2
Reno, Nevada 89509
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.
15.2 INTENTIONALLY OMITTED.
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 Affiliation Agreement of
even date herewith, 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 INTENTIONALLY OMITTED.
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 endodontics. 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 endodontics, 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.
INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the day and year first above written.
NEW PC:
RODNEY A. GRAY, D.D.S., M.S., LTD.
By: /s/ Rodney A. Gray
Name: Rodney A. Gray
Title: President
MSO:
OMEGA ORTHODONTICS OF
RENO, INC.
By: /s/ Robert J. Schulhof
Name: Robert J. Schulhof
Title: President
OMEGA:
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Name: Robert J. Schulhof
Title: President
SCHEDULE 1
THE ENDODONTISTS
Name and Address
Rodney A. Gray, D.D.S.
4101 Caughlin Square - Suite 2
Reno, Nevada 89509
SCHEDULE 2
ENDODONTIC OFFICES AND SERVICES
The office space and related leasehold improvements which the MSO will
provide to the New PC pursuant to Section 2.2 of the Management
Services Agreement to which this Schedule 2 is attached are
located at 4101 Caughlin Square, Suite 2, Reno, Nevada 89509.
The related fixtures, furniture, furnishings and equipment are
set forth on the attached asset list. The services to be
provided by the MSO to the New PC in relation to the Endodontic
Offices are the repair, maintenance and replacement of the
Endodontic 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 also provide
telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen
and uniforms.
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, (a)
during the Term of this Agreement, monthly Management Fees in an
amount equal to Sixty Five Percent (65%) of the Practice Revenues
plus (b) during the first thirty six (36) months of this
Agreement only, a monthly start up management fee in an amount
equal to $8,333.33, and the New PC shall be entitled to Thirty
Five Percent (35%) of such monthly Practice Revenues, less the
start up management fee during the first thirty six (36) months
of this Agreement, except as the parties may otherwise agree from
time to time in writing; provided, however, that in no event
shall the MSO receive less than $200,000 in Management Fees (not
including the start up management fees during the first thirty
six (36) months of this Agreement) annually. 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 such
MSO Expenses are more than fifty (50%) percent of the Practice
Revenues for such twelve month period, fifty (50%) percent of
such excess will be charged to the New PC and set off against
payments due to the New PC hereunder. If the Agreement to which
this Schedule 3 is attached is terminated or expires, the
foregoing Management Fees (including any start up 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 endodontic services furnished to
patients by the New PC and for any other goods or services sold
or provided to such patients.
EXHIBIT A
ENDODONTIC OFFICES - MASTER LEASE
EXHIBIT B
PRACTICE PROVIDERS
Rodney A. Gray, D.D.S.
4101 Caughlin Square - Suite 2
Reno, Nevada 89509
EXHIBIT C
New PC'S AFFIDAVIT
AFFIDAVIT
I, Rodney A. Gray, D.D.S., declare:
I am an endodontist, duly licensed in the State of Nevada and I
practice through a professional corporation under the name Rodney
A. Gray, D.D.S., M.S., Ltd. (the "New PC").
I have had substantial experience in the practice of endodontics
and in managing and operating an endodontic office.
In the course of operating endodontic offices, I have acquired
significant knowledge as to the overhead costs incurred and gross
receipts generated by similar types of endodontic offices.
Further, I am fully aware of the non-endodontic, operational,
accounting, billing, financing, management and personnel
requirements of an endodontic 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 January 1, 1998, between
the New PC and Omega Orthodontics of Reno, Inc. (the "MSO")
concerning the duties, responsibilities and obligations
undertaken by the MSO in managing and operating all non-
endodontic aspects of the Endodontic Office as contemplated by
the Agreement.
I have reviewed the prior operating financial statements of the
endodontic office located at 4101 Caughlin Square - Suite 2,
Reno, Nevada 89509 and an operating budget and estimated income
of the endodontic 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 (plus the monthly start
up management fee of $8,333.33 payable during each of the first
thirty six (36) months of the Agreement), will afford it a
reasonable but not excessive return for its services rendered and
obligations incurred. In addition, the Thirty Five Percent (35%)
of "Practice Revenues" (less the start up management fees due
during the first thirty six (36) months of this Agreement)
retained by the New PC will provide reasonable earnings for the
performance of endodontic 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 Reno, Nevada this ____ day of January 1998..
___________________________
Rodney A. Gray, D.D.S.
STATE OF NEVADA
___________________, ss January ___, 1998
Then personally appeared the above-named Rodney A. Gray, D.D.S.
and acknowledged the foregoing Affidavit to be his free act and
deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
EXHIBIT D
SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 1st day of January
1998, by Rodney A. Gray, D.D.S., M.S., Ltd., a Nevada corporation
(the "New PC"), and Rodney A. Gray, D.D.S. ("Dr. Gray") who is
duly licensed to practice endodontics in the State and Omega
Orthodontics of Reno, 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. Gray 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 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 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 Reno, 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:
4101 Caughlin Square - Suite 2
Reno, Nevada 89509
Attn: Rodney A. Gray, 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.
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.
14. Counterparts. This Security 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 caused this
Agreement to be duly executed, as of the day and year first
hereinabove written.
NEW PC: MSO:
RODNEY A. GRAY, D.D.S., M.S., LTD. OMEGA ORTHODONTICS OF
RENO, INC.
By:____________________________
By:__________________________
Name: Rodney A. Gray Name: Robert J.
Schulhof
Title: President Title: President
DR. GRAY
_______________________________
Rodney A. Gray, D.D.S.
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
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.
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 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.
EXHIBIT 10.39
-26-
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 1st day
of January, 1998 by and among Rodney A. Gray, D.D.S., M.S., Ltd.,
a professional corporation (the "New PC") incorporated under the
laws of the State of Nevada (the "State"); Rodney A. Gray, D.D.S.
("Dr. Gray") who is duly licensed to practice endodontics in the
State; Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"); and Omega Orthodontics of Reno, 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 and other dental specialty
practice management company and has expertise in managing
orthodontic and other dental specialty practices including
practice management systems, office space, equipment, furnishings
and active administrative personnel necessary for the operation
of such practices and providing high quality healthcare
management services to such practices, directly or indirectly
through management service organizations such as the MSO.
B. OMEGA acquired certain assets of Dr. Gray pursuant to
that certain Affiliation Agreement and Asset Purchase Agreement
(the "Affiliation Agreement") dated as of January 1, 1998 by and
between OMEGA and Dr. Gray.
C. The New PC owns and operates an endodontic practice
with offices located in the facility identified in Exhibit A (the
"Endodontic Offices") and furnishes endodontic care to the
general public through the services of Dr. Gray affiliated with
the New PC.
D. The New PC and the MSO and OMEGA 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-endodontic business affairs of the New PC.
E. Dr. Gray 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.
Gray'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. Gray has agreed to grant to the MSO, and the MSO
desires to acquire from Dr. Gray 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.
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. Gray, 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 Endodontic 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 Endodontic
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. Gray 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 Endodontic 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. Gray 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:
(a) Sell to the New PC all of the leasehold
improvements, fixtures, furniture, furnishings and equipment
comprising or located at the Endodontic 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, set forth on the Balance
Sheet to reflect operations of the MSO in respect of the
Endodontic 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. Gray 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
Endodontic 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 (the "Call
Option Notice"). 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 fair market value of the assets, tangible and
intangible, described in Clauses (a) and (b) of this Section 3
(collectively, the "Call Price"). For purposes of this Section
3, the "fair market value" of such assets shall be determined by
an independent appraiser acceptable to, and appointed by, the MSO
and the New PC. In the event that the MSO and the New PC cannot
agree on an independent appraiser, the fair market value of such
assets shall be determined by three independent appraisers, one
of whom shall be appointed by the MSO, one of whom shall be
appointed by the New PC and the third of whom shall be appointed
by mutual agreement of the two appointed appraisers. Within
sixty (60) days after the appointment of the third appraiser, the
three appraisers shall each submit in writing their determination
of fair market value of such assets to each of the MSO and the
New PC, and the fair market value of such assets shall be
conclusively determined by taking the numerical average of the
two fair market value determinations which are closest in amount.
The cost of obtaining these appraisals shall be paid one-half by
the MSO and one-half by the New PC.
Notwithstanding the foregoing, in the event that the New PC
terminates the Management Services Agreement pursuant to Section
10.1(a)(1) of the Management Services Agreement, the Call Option
may be exercised by the payment by the New PC to the MSO of (w)
if the Call Option Notice is received by the MSO during the first
year following the date of this Agreement, $400,000 in cash, the
cancellation of the Purchase Note and the return of the shares of
Omega Common Stock received by Dr. Gray under Section 1.1(a)(iii)
(the "Omega Shares"), (x) if the Call Option Notice is received
by the MSO during the second year following the date of this
Agreement, $300,000 in cash, the cancellation of the Purchase
Note and the return of any Omega Shares then owned of record or
beneficially by Dr. Gray, (y) if the Call Option Notice is
received by the MSO during the third year following the date of
this Agreement, $200,000 in cash, the cancellation of the
Purchase Note and the return of any Omega Shares then owned of
record or beneficially by Dr. Gray and (z) thereafter, the lesser
of (A) the depreciated book value of the assets described in
Clause (a) of this Section 3 or (B) $100,000.
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, in the case of the Put Option, at the
offices of Robinson & Cole LLP, One Boston Place, Boston,
Massachusetts 02108 and, in the case of the Call Option, at the
offices of Harold G. Albright, 124 Ridge Street, Reno, Nevada
89501, 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, at the option of the New PC and with the consent of Dr. Gray,
a combination of cash, forgiveness of amounts due to Dr. Gray
under the Purchase Note and/or return of the shares of Omega
Common Stock received by Dr. Gray under Section 1.1(a)(iii) of
the Affiliation Agreement (the value of such shares 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 of the Put
Option Notice or the Call Option Notice, as the case may be) 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. Gray 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 party 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 of
the Capital Stock then held by Dr. Gray:
(i) the death of Dr. Gray;
(ii) if Dr. Gray 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. Gray voluntarily terminates his
employment without first proposing and obtaining the MSO's
approval of a proposed qualified successor endodontist
reasonably acceptable to the MSO on behalf of the New PC;
(iv) if Dr. Gray acts in a criminally or grossly
negligent manner with respect to the performance of
professional endodontic services rendered or to be rendered
on behalf of the New PC;
(v) if Dr. Gray becomes hospitalized for alcohol or
drug abuse;
(vi) if Dr. Gray is convicted of a felony;
(vii) if Dr. Gray loses his license or is otherwise
determined to be disqualified from rendering services as an
endodontist for the New PC by the applicable dental or other
comparable regulatory board of the State;
(viii) if Dr. Gray'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. Gray 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. Gray 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. Gray and such
involuntary petition, assignment or attachment is not
discharged within sixty (60) days after creation;
(xi) if Dr. Gray 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. Gray retires within the meaning of
Paragraph (c) of this Section 5; or
(xiii) if Dr. Gray desires to sell any of his shares
of Capital Stock to another endodontist 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 thirty (30) days, (i)
prevents Dr. Gray from performing his duties competently and
adequately as determined by the MSO, or (ii) substantially
impairs the New PC's or Dr. Gray's ability to practice
endodontics.
(c) For purposes hereof, "Retirement" of Dr. Gray shall
occur on the date when Dr. Gray voluntarily withdraws from the
practice of endodontics 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 endodontist 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,
but not less than all, of 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. Gray (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. Gray 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. Gray, Dr.
Gray 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. Gray
desires to sell any of the Capital Stock to another endodontist
(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. Gray 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. Gray may sell the Capital
Stock to the Purchaser 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. Gray 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 endodontist,
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. Gray (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. Gray. 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. Gray's Estate.
(i) Upon the death of Dr. Gray and receipt of
notice of a Successor Designation Exercise Notice, Dr. Gray's
personal representative shall apply for and obtain any necessary
court approval or confirmation of the sale of Dr. Gray's shares
of Capital Stock pursuant to this Agreement. The representative
of the estate of Dr. Gray 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. Gray's spouse, if any, shall
not be considered the death of Dr. Gray for purposes of this
Agreement.
(iii) The estate of Dr. Gray 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. Gray to transfer to the Designated Successor full
legal and equitable tax-free title to the Capital Stock of Dr.
Gray.
(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, 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. Gray
hereby consents to the acquisition and maintenance in force of a
disability insurance policy and a life insurance policy on Dr.
Gray ("Insurance Policies"). The life insurance policy may be in
an aggregate face amount of up to three times Dr. Gray's income,
as shown on the W-2 Form prepared by the New PC for the most
recent calendar year. Dr. Gray 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. Gray 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. Gray 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. Gray 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. Gray shall execute and deliver to Harold G.
Albright, as escrow agent (the "Escrow Agent"), 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. Gray. Upon execution of this
Agreement, Dr. Gray 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. Gray.
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
as of January 1, 1998, 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 deliver the Stock Powers and the
certificates representing all of the shares of Capital Stock held
of record or beneficially owned by Dr. Gray to the MSO and 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 Escrow Agent shall return all such Stock
Powers and certificates to Dr. Gray.
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. Gray, 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. Gray
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. Gray 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. The rights and 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 and OMEGA shall be permitted to assign its and their
respective rights and duties hereunder without the consent of Dr.
Gray or the New PC to any person, firm or corporation controlled
by the MSO or OMEGA, controlling the MSO or OMEGA or under common
control with the MSO or OMEGA.
(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 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. Gray, to:
Rodney A. Gray, D.D.S.
4101 Caughlin Square - Suite 2
Reno, Nevada 89509
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.
(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. Gray 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.
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.
INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the New PC, Dr. Gray, 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"
RODNEY A. GRAY, D.D.S., M.S., LTD.,
a Nevada corporation
By: /s/ Rodney A. Gray
Rodney A. Gray, President
DR. GRAY
/s/ Rodney A. Gray, D.D.S.
Rodney A. Gray, D.D.S.
"MSO"
OMEGA ORTHODONTICS OF RENO, INC.
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President and
Chief Executive Officer
SPOUSAL JOINDER AND CONSENT
I am the spouse of Rodney A. Gray, D.D.S., the sole
Stockholder of Rodney A. Gray, D.D.S., M.S., Ltd. 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 January, 1998.
Signature:
Printed or Typed Name:
EXHIBIT A
ENDODONTIC OFFICES
The offices and related leasehold improvements constituting the
Endodontic Offices are located at 4101 Caughlin Square, Suite 2,
Reno, Nevada 89509.
EXHIBIT B
STOCK
The authorized capital stock of the New PC is 2,500 shares
of common stock, no par value. ___________shares of the common
stock of the New PC are issued and are outstanding, all of which
shares are evidenced by Certificate No. 1 issued in the name of
Rodney A. Gray.
EXHIBIT C
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is made as of this
day of
_______________, ____ by and between ____________________, D.D.S.
("Dr. _____________"), who is duly licensed to practice
endodontics in the state of _____________, and
___________________, a professional corporation (the "New PC")
incorporated under the laws of the State.
All capitalized terms used herein and not otherwise
expressly defined shall have the same meanings set forth in that
certain Stock Put/Call Option and Successor Designation Agreement
("Stock Agreement") dated ____________, 199_ by and among Dr.
__________________, the New PC, Omega Orthodontics, Inc., a
Delaware corporation ("Omega") and Omega Orthodontics of
____________________, Inc., a Delaware corporation (the "MSO")
which is a wholly owned subsidiary of Omega.
RECITALS
A. Dr. _________________ is the sole owner of the Capital
Stock of the New PC and desires to transfer all of his right,
title and interest in and to such Capital Stock pursuant to
Section 8 of the Stock Agreement to the Purchaser.
B. The Purchaser has agreed to join the Stock Agreement
and to enter into an employment agreement with the New PC on
terms and conditions acceptable to and approved by the MSO.
C. As a condition to the transfer by Dr. ______________ of
his Capital Stock to the Purchaser pursuant to Section 8 of the
Stock Agreement, Dr. ______________ has agreed to enter into an
agreement in the form of this Agreement to be delivered to the
New PC upon the closing of the transfer of his Capital Stock
pursuant to Section 8 of the Stock Agreement.
NOW, THEREFORE, in consideration of the foregoing promises
and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
1. Dr. _______________'s Covenants . During the term of
this Agreement in the Service Area described in Section 4 below,
Dr. __________________ shall not (directly or indirectly through
any business, enterprise, venture, partnership, corporation or
any other entity controlled directly or indirectly by Dr.
_______________, whether alone or as a partner, stockholder,
creditor or otherwise):
(a) Provide endodontic or other dental services, or
engage, participate, aid, assist, or hold any interest in any
business or the provision of any managed care plan service which
is, or as of Dr. ______________'s engagement or participation,
would become, competitive with the New PC's endodontic practice
business;
(b) Engage or contract (other than with the MSO or any
of the MSO's affiliates) for the provision of any management
services for Dr. _____________ or any person employed or under
contract to Dr. ________________ (as applicable) which are the
same as or substantially similar to any of the services that the
MSO or any of the MSO's affiliates furnishes;
(c) Solicit or assist any other person to solicit any
business relating to a competing line of business (other than for
the New PC or any of its affiliates) from any present or
potential patient, customer (including all third party payors) of
Dr. _________________, the New PC or any of their respective
affiliates;
(d) Commit any other act or assist others to commit
any other act which might injure the business of the New PC, the
MSO or any of their respective affiliates;
(e) Directly or indirectly employ, contract, solicit
or encourage any employee or other person under contract with
the New PC, the MSO or any of their respective affiliates to
leave the employ of any such entity; and
(f) Directly or indirectly solicit, request, advise,
or encourage any present or future supplier, patient, customer or
employee of the New PC, the MSO or their respective affiliates to
withdraw, curtail or cancel its business dealings with the New
PC, the MSO or their respective affiliates, or take any actions
that might impair the relations of the New PC, the MSO or any of
their respective affiliates and their respective suppliers,
patients, customers, employees or others.
2. Dr. _______________'s Representations. Dr.
______________ specifically acknowledges, represents, and
warrants that: (i) his covenants set forth in this Agreement are
being given in connection with the sale of the Capital Stock to
the Purchaser pursuant to Section 8 of the Stock Agreement; (ii)
such covenants are reasonable and necessary to protect the
legitimate interests of the New PC, the MSO and Omega; and (iii)
the New PC, the MSO and Omega would not have consented to such
sale in the absence of such restrictions. Dr. _______________
acknowledges that this Agreement is subject to all
representations, warranties and covenants of Dr. _______________
in the Stock Agreement.
3. Service Area. The Service Area to which Dr.
________________'s covenants in Section 1 apply is defined as the
area within a fifteen (15) mile radius (or the maximum radius
permitted by law, if less) of each endodontic office or other
endodontic facility owned, operated or managed by Dr.
________________ or the New PC now existing or hereafter
established.
4. Term . The term of this Agreement commences as of the
day and year first above written and continues for twenty-four
(24) months.
5. Payment. As consideration for Dr. ________________'s
agreement not to compete and other covenants herein, the New PC
shall pay Dr. ________________ upon the execution of this
Agreement by the New PC the amount of One Thousand Dollars
($1,000).
6. Remedies. In the event of a breach by Dr.
_______________ of this Agreement, the New PC shall be entitled
to receive, on behalf of the MSO, from Dr. _______________, in
addition to other remedies and not by way of an election of
remedies, liquidated damages equal in amount to the greater of
(a) Dr. _________________'s income, as shown on the W-2 form
prepared by the New PC for the most recent calendar year or (b)
$300,000. Any amounts received by the New PC pursuant to the
prior sentence shall be paid to the MSO by the New PC immediately
following receipt by the New PC. Should a court fail to enforce
the liquidated damages provision set forth in the first sentence
of this
Section 6, the parties acknowledge and agree that, absent such
liquidated damages, a breach by Dr. ________________ of this
Agreement will cause irreparable damage to the New PC, the exact
amount of which will be difficult to ascertain, and that remedies
at law for any such breach will be inadequate. Accordingly, Dr.
________________ agrees that in such case, the New PC shall be
entitled to injunctive relief and Dr. _______________ agrees not
to assert in any proceeding that the New PC has an adequate
remedy at law. Each party shall pay its own fees and expenses,
including attorneys fees, in any action to enforce this
Agreement.
7. Third Party Beneficiaries. The parties expressly
understand and agree that the MSO and Omega are third party
beneficiaries of this Agreement and shall be entitled to all of
the rights and remedies provided herein to the New PC and shall
be entitled to enforce the terms of this Agreement.
8. Miscellaneous .
(a) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties and
their respective heirs (as applicable), legal representatives,
and permitted successors and assigns. No party may assign this
Agreement or the rights, interests or obligations hereunder;
provided, however, that the New PC may assign its rights,
interests and obligations to the MSO, Omega and their affiliates
without the consent of Dr. _____________. Any assignment or
delegation in contravention of this Section shall be null and
void.
(b) 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.
(c) 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.
(d) Amendment. This Agreement may not be amended
except in a writing executed by all parties.
(e) Time of Essence. Time is expressly made of the
essence of this Agreement and each and every provision hereof of
which time of performance is a factor.
(f) Notices. Any notices required or permitted to be
given hereunder by any party to the other 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 specify
in writing:
If to Dr. ________________: Dr. ______________________
______________________
______________________
If to the New PC: ________________________
________________________
________________________
(g) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Nevada.
(h) Severability. If any provision or portion of this
Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this Agreement will
nevertheless continue in full force and effect and shall not be
invalidated or rendered unenforceable or otherwise adversely
affected, unless such invalidity or unenforceability would defeat
an essential business purpose of this Agreement. Without
limiting the generality of the foregoing, if the provisions of
this Agreement shall be deemed to create a restriction, which is
unreasonable as to either duration or geographical area or both,
the parties agree that the provisions of this Agreement shall be
enforced for such duration and in such geographic area as any
court of competent jurisdiction on may determine to be
reasonable.
(i) Attorneys' Fees. Should either the New PC or Dr.
________________ institute any action or procedure to enforce
this Agreement or any provision hereof, 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 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.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement of the day and year first written above.
"DR. ________________" "NEW PC"
_______________________________
______________________________ By:
___________________________
President
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
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.
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 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.
EXHIBIT 10.40
BOST1-629819-2
NON-NEGOTIABLE PROMISSORY NOTE
$374,400.00 Acton, California
January 1, 1998
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware
corporation ("Omega"), promises to pay to Dr. Rodney A. Gray
("Dr. Gray") at 4101 Caughlin Square - Suite 2, Reno, Nevada
89509 or other location specified by Dr. Gray in writing, Three
Hundred Seventy Four Thousand Four Hundred Dollars ($374,400.00)
together with interest on any and all principal amounts, such
interest to be at the rate of 8.0% per annum and payable monthly
on the first day of each month, beginning with 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 first 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 48th 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 48 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.
Gray, 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 without penalty or premium, upon
written notice to Dr. Gray.
5. Expenses. Omega agrees to pay all expenses, including
reasonable attorney's fees, which Dr. Gray may incur in effecting
collection of this Note upon default or at maturity.
6. Delays. Dr. Gray 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. Gray. 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. Gray 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.
Gray 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.
INTENTIONALLY LEFT BLANK
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.
/s/ Diane Kessler By: /s/ Robert J.
Schulhof
Robert J. Schulhof,
President
EXHIBIT 10.41
BOST1-636502-2
MANAGEMENT SERVICES AGREEMENT
AMONG
SCOTT E. FELDMAN, D.D.S. M.S, Inc.
(the "PC")
AND
OMEGA ORTHODONTICS OF RESEDA, INC.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
TABLE OF CONTENTS
ARTICLE 1 4
ARTICLE 2 5
2.1 General 5
2.2 Orthodontic Office Services 5
2.3 Administrative Services 5
2.4 Business Systems, Procedures and Forms 6
2.5 Purchasing, Accounts Payable, Supplies and
Inventory Control 6
2.6 Regulatory Compliance Services 7
2.7 Billing, Collection 7
2.8 Disbursement of Funds 7
2.9 MSO Expenses 8
2.10 Credit Reports 10
2.11 Accounting; Bookkeeping and Reports 10
2.12 Marketing 10
2.13 Complaints 10
2.14 Practice Laws 11
2.15 Monthly Meetings 11
2.16 Maintenance and Cleaning Services 11
2.17 Licenses and Permits 11
2.18 Insurance 11
2.19 Practice Transition and Associate Selection 11
ARTICLE 3 12
3.1 General 12
3.2 Employment of the Orthodontists and Rendering of
Patient Care 12
3.3 Professional Services 12
3.4 Records 13
3.5 Professional Expenses 13
3.6 Professional Liability Insurance 13
3.7 Employment Agreement 13
3.8 Confidentiality 14
ARTICLE 4 15
ARTICLE 5 15
ARTICLE 6 17
ARTICLE 7 18
ARTICLE 8 19
8.1 PC's Covenants 19
8.2 MSO's Covenants 20
ARTICLE 9 20
9.1 Insurance to be Maintained by the PC 20
9.2 Insurance to be Maintained by the MSO 20
9.3 Tail Insurance Coverage 20
9.4 Additional Insureds 21
9.5 Indemnification 21
ARTICLE 10 21
10.1 Termination by the PC 21
10.2 Termination by MSO 22
ARTICLE 11 22
ARTICLE 12 23
ARTICLE 13 23
13.1 Access to Records 23
13.2 Patient Records 23
13.3 The PC's Control Over the Orthodontic Practice 24
ARTICLE 14 24
14.1 Alternative Dispute Resolution 24
14.2 Waiver of Jury 25
ARTICLE 15 26
15.1 Notices 26
15.2 Confidentiality 26
15.3 Contract Modifications for Prospective Legal
Events 26
15.4 Remedies Cumulative 27
15.5 No Obligation to Third Parties 27
15.6 Entire Agreement 27
15.7 Assignment 27
15.8 Attorneys' Fees 27
15.9 Governing Law 28
15.10 Events Excusing Performance 28
15.11 Compliance with Applicable Laws 28
15.12 Language Construction 28
15.13 Amendments 28
15.14 Severability 28
15.15 No Waiver 28
15.16 Captions 28
15.17 Counterparts 29
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 7th day of
January, 1998, by and among SCOTT E. FELDMAN, D.D.S. , INC., a
professional corporation (the "PC") incorporated under the laws
of the State of California (the "State"), and OMEGA ORTHODONTICS
OF RESEDA, 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, the PC owns and operates an orthodontic practice
(the "Practice") with offices located in the facilities
identified in Exhibit A (the "Orthodontic Offices") and furnishes
orthodontic care to the general public at the Orthodontic Offices
through the services of Dr. Feldman and any and all other
orthodontists who are or become affiliated with the PC as of or
following the date hereof and who are or become subsequently
named on Schedule 1 hereto (individually, an "Orthodontist" and
collectively, the "Orthodontists");
WHEREAS, the MSO was formed to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business
affairs of, the PC at the Orthodontic Offices;
WHEREAS, the MSO's services are designed to improve the
efficiency and profitability of the PC at the Orthodontic Offices
while enhancing the ability of Dr. Feldman and the Orthodontists
(if any) to render quality orthodontic care to the patients of
the PC;
WHEREAS, the PC wishes to retain the MSO to perform the
functions and to provide the services described in this Agreement
solely at the Orthodontic Offices and to assist the PC to achieve
the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform
managerial and administrative services for the PC solely at the
Orthodontic Offices and provide office space and orthodontic
facilities appropriate for rendering general orthodontic
treatment at the Orthodontic Offices upon the following terms and
conditions:
ARTICLE 1
TERM
1.1 The initial term of this Agreement shall commence on
the date first above written and continue for a period of twenty
(20) years (the "Initial Term"), subject, however, to earlier
termination in accordance with Article 10 hereof. This Agreement
shall continue for two separate and successive ten year periods
(each a "Renewal Term" and collectively with the Initial Term,
the "Term") unless the MSO otherwise elects upon six months
written notice to the 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 PC with
comprehensive practice management, financial and marketing
services, and such facilities, equipment, and support personnel
as are reasonably required by the PC to operate its Practice at
the Orthodontic Offices, as determined by the MSO in consultation
with the PC. The PC hereby appoints the MSO as the sole and
exclusive business manager of the PC at the Orthodontic Offices
and agrees that the MSO shall have all power and authority
reasonably necessary to manage the non-orthodontic business
affairs of the PC at the Orthodontic Offices 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. The PC acknowledges and agrees that the MSO may
subcontract with other persons or entities, including OMEGA and
any entities related to the MSO by ownership or control, to
perform any part or all of the services required of the MSO
hereunder.
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 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 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 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
at the Orthodontic Offices, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by
the PC, to enable the 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 PC. The 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 PC, which
approval shall not be unreasonably withheld, and the 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, withholding,
fringe benefits, bonuses and workers' compensation insurance in
connection with its employees; provided, however, that the 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 PC or otherwise
under contract with the PC to provide dental or orthodontic,
hygienic or other assistance or services to patients of the PC at
the Orthodontic Offices or otherwise required by applicable
"Laws" (as defined in Section 2.6 below) to be employees of the
PC to provide services to patients of the Practice. A list of
all Practice Providers and their relationship to the 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 PC shall use its best efforts to consult with the
MSO. The PC also shall use its best efforts to consult with the
MSO with regard to the terms of contracts entered into between
the 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 PC, the MSO shall establish standardized
business systems and procedures for the PC's business and
operations at the Orthodontic Offices, 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 PC operating
efficiency. The MSO shall analyze such information on an ongoing
basis in order to advise the PC on ways of improving operating
efficiencies at the Orthodontic Offices. The MSO shall provide
training to the staff of the PC in the implementation and
operation of such standardized business systems and procedures at
the Orthodontic Offices. The MSO shall additionally provide the
PC with and train the PC's staff in the use of standardized
clinical forms, including, without limitation, forms for patient
evaluations and treatment plans. The 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 PC at the
Orthodontic Offices. The MSO shall order and purchase and
maintain all inventory and orthodontic supplies as reasonably
required by the PC to enable the PC to render orthodontic care to
its patients at the Orthodontic Offices 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 PC such business, legal and
regulatory management consultation and advice as may be
reasonably required or requested by the PC and directly related
to the operations of the PC at the Orthodontic Offices or its
compliance with Federal, state or local laws, rules, regulations
or interpretations governing or applicable to the 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 PC or its compliance with Laws, or for any
legal or tax advice or services or personal financial services to
Dr. Feldman and the Orthodontists (if any) or any employee or
agent of the 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 PC and the Practice
Providers relating to services rendered at the Orthodontic
Offices, with all such billing and collecting to be done in the
name of the PC; (ii) receiving payments from patients, insurance
companies and all other third party payors relating to services
rendered at the Orthodontic Offices; (iii) taking possession of
and endorsing in the name of the PC any notes, checks, money
orders, insurance payments and other instruments received in
payment for services or of accounts receivable in each case
relating to services rendered at the Orthodontic Offices; and
(iv) settling and compromising claims relating to the services
rendered at the Orthodontic Offices 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 PC's behalf. In
seeking payments on behalf of the PC hereunder, the MSO shall act
as the PC's agent in billing and collecting professional fees,
charges and other accounts owed to the PC and shall only bill
under the PC's provider number. In this regard, the 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 PC as a result of any
inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the PC by the MSO
pursuant to Section 2.7 above shall be deposited into an account
(the "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 PC (the "Bank"). The PC Account
shall contain the name of the PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so
disbursed from the PC Account.
(b) From the funds collected and deposited by the MSO
in the PC Account, the MSO shall make for and on behalf of the 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 PC
for the services rendered, at the Orthodontic Offices, 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 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 PC
the necessary funds to pay the current portion of such expenses
for the benefit of the PC, which advances will be deemed to be
loans to the PC to be repaid without interest from the 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 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 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 PC at the
Orthodontic Offices, including, without limitation:
(1) Salaries, benefits and other direct costs of
all employees of the MSO providing services to the 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 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 PC or other
orthodontic entities to merge with the 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 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;
(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 PC other
than as otherwise expressly provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the 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 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 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 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 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
PC and the MSO agree that the aggregate maximum annual amount
shall be $5,000.
2.10 Credit Reports. When requested by the PC, or its
authorized representative, the MSO shall obtain on behalf of the
PC information with regard to the ability of patients to pay for
the services to be rendered by the PC at the Orthodontic Offices.
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 PC at the Orthodontic Offices either in cash or
by insurance. Such determination shall be subject to the
reasonable approval by the PC, and as between the PC and the MSO,
the 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 PC's operations and business at the
Orthodontic Offices, provided that such services are incurred in
the ordinary course of business. In addition, the MSO shall
provide the 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 PC, all prepared by or with the
assistance of an accountant chosen by the MSO. At the end of
each fiscal year of the PC, the MSO shall arrange for a financial
statement with respect to the PC to be prepared by the MSO's
accountant. At the 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 PC. The
MSO shall assist and advise the PC in the financial management of
the PC.
2.12 Marketing. The MSO shall design and execute a
marketing plan to promote the PC's professional services at the
Orthodontic Offices. The MSO shall also make available to the PC
all brochures, contracts, and other materials reasonably related
to the carrying out of the business purposes of the PC at the
Orthodontic Offices, 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 PC in handling
all complaints, grievances and disputes involving the PC and the
Practice Providers and any patients or third parties. However,
the MSO shall have no control over the PC's patients. All
decisions concerning the PC's patients shall be made by the 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 PC regarding the policies and
procedures for the operation of the 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 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 insurance for the
Orthodontic Offices, including business interruption insurance,
not including professional liability insurance (which shall be
and remain the responsibility of the PC).
2.19 Practice Transition and Associate Selection. Dr.
Feldman and the Orthodontists (if any) shall keep the MSO
informed of retirement goals on an ongoing basis. Upon request of
the 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 PC. The PC
shall be responsible for interviewing and selecting each Practice
Associate. After the Practice Associate(s) is (are) selected by
the PC, the MSO will assist the 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 PC or the
new Practice Associate may terminate the relationship. All such
Practice Associates recruited by the MSO as may be accepted by
the PC shall be employees of the Practice (if so employed) and
not of the MSO. The MSO will confer with the PC on an
appropriate salary/work-in arrangement for the new Practice
Associate and the final arrangements shall be determined by the
PC.
ARTICLE 3
DUTIES OF THE PC
3.1 General. The 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 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 PC shall be responsible for the professional
supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The 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 PC shall provide professional services to patients
hereunder in compliance at all times with ethical standards and
Laws applying to the orthodontic profession. The 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 PC shall immediately inform the MSO of
such action and the underlying facts and circumstances subject to
such confidentiality agreement or arrangements as the PC and the
MSO shall mutually determine at or prior to the time of such
disclosure. The 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 PC at once to
remedy such deficiencies.
3.4 Records. The 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
PC, to obtain payments for services at the Orthodontic Offices
and related charges and to facilitate the delivery of quality
patient care by the PC at the Orthodontic Offices.
Notwithstanding the foregoing, patient dental records shall be
and remain the property of the PC and the contents thereof shall
be solely the responsibility of the PC.
3.5 Professional Expenses. The 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 PC. The MSO shall
reimburse the PC for such expenses incurred in connection with
the Orthodontic Offices in accordance with the Approved Budget.
The PC shall ensure that Dr. Feldman and all the Orthodontists
employed by the PC participate in such continuing education as is
necessary for Dr. Feldman and such other Orthodontists to remain
current.
3.6 Professional Liability Insurance. The 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 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 PC
operates an active orthodontic practice to which it, Dr. Feldman
and each Orthodontist associated with the PC devote their full
time and attention, unless other specific provisions are made in
writing and mutually agreed upon by the MSO and PC. The PC will
cause Dr. Feldman and each individual Orthodontist who now is or
hereafter becomes affiliated with the 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 PC and the MSO, at any office or facility other than
the Orthodontic Offices and the orthodontic office located at
19231 Victory Boulevard, Suite 557, Reseda, California. In
addition, such Employment Agreement shall provide by its own
terms or by a separate agreement that Dr. Feldman or such
Orthodontist will not, directly or indirectly, either for Dr.
Feldman or such Orthodontist's own benefit or for the benefit of
any other person, firm, company, corporation or other entity,
call on, solicit, divert or take away, or attempt to call on,
solicit, divert or take away, any of the PC's patients, business
or employees, including but not limited to, those to whom Dr.
Feldman or such Orthodontist catered or provided services or
those with whom Dr. Feldman or such Orthodontist became
acquainted while engaged as an employee of the PC. Such
Employment Agreement (or separate 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
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 PC, for the most recent calendar year; or (b) $300,000. Such
payment shall be made to the MSO by the PC immediately following
receipt of the payment from Dr. Feldman or the breaching
Orthodontist by the PC. Each of the MSO and OMEGA shall be
expressly named as a third-party beneficiary to such agreements
between the 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 PC agrees and acknowledges that
all materials provided by the MSO to the 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 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 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 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 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 PC will not, and will cause its affiliates, partners,
employees and independent contractors not to, thereafter use,
appropriate, or reproduce such Confidential Information. The 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 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 PC,
nor shall the MSO have any control over the 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 PC shall be used or distributed without
having first been approved by the 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 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 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 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 PC at the Orthodontic Offices
(collectively, the "Master Lease") a copy of which is attached
hereto as Exhibit A and incorporated herein by this reference.
The PC hereby acknowledges that the premises described under the
Master Lease are suitable for the PC's orthodontic practice at
the Orthodontic Offices. Based and contingent upon the PC's
promise to timely pay all amounts due under this Agreement, the
MSO hereby agrees to sublease the leased premises to the PC upon
the following terms and conditions:
(i) This sublease between the MSO and the 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 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 PC,
respectively) and, along with the provisions of this Section
5.1(a) 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 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 PC shall have no monetary obligation in that regard. In
addition, as between the MSO and the 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 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 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 Offices, which Substitute Orthodontic
Office shall be subject to the approval of the 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 PC's tenancy or the MSO's
rights and remedies as Sub-Lessor.
5.2 The MSO shall provide the PC at the Orthodontic Offices
such additional leasehold improvements, fixtures, furniture,
furnishings and equipment as may be mutually agreed to with the
PC and reflected from time to time on a supplement to Schedule 2
hereto. The use by the 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 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 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 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 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 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 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 PC
specifically agrees that the MSO may defer actual receipt of its
Management Fees and/or advance monies for purposes of managing
the PC's cash flow relating to its business and operations at the
Orthodontic Offices, 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 PC pursuant to this Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed
by the PC under this Agreement, the 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
PC relating to its business and operations at the Orthodontic
Offices, 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 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 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 PC's Covenants. As further consideration for the MSO's
performance of the terms and conditions of this Agreement, the PC
covenants, represents and warrants as follows (which covenants,
representations and warranties shall survive the execution of
this Agreement):
(a) The PC shall comply with all Laws and ethical and
professional standards applicable to the practice of orthodontics
and cause all of its employees to do the same.
(b) The 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 PC at the Orthodontic
Offices. The 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 at the
Orthodontic Offices.
(c) During the Term of this Agreement, the 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; provided however that during the
term hereof the PC shall be permitted to practice orthodontics at
the offices located at 19231 Victory Boulevard, Suite 557,
Reseda, California 91335.
(d) The 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 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 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 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 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 PC to perform duties in connection with
the PC and who have a need to know such trade secrets in the
performance of their duties for the PC, without OMEGA's or the
MSO's prior written consent, as the case may be. The 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 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 PC. The 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 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 PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the PC. Throughout the
Term of this Agreement, the 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 for Dr. Feldman and each of the Orthodontists providing
services for the PC and a separate limit for the PC. The 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 PC with respect to such insurance. Deductibles
with respect to such policies shall not be MSO Expenses. The MSO
shall reimburse the PC for premiums in accordance with the
Approved Budget. The PC also agrees to name the MSO and OMEGA
as co-insureds. The 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 PC will cause Dr. Feldman
and each Orthodontist (if any) providing services to enter into
an agreement with the PC that upon termination of Dr. Feldman's
or such Orthodontist's relationship with the 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 PC and Dr. Feldman or the Orthodontist, and
the 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 PC or Dr. Feldman or each such
Orthodontist.
9.4 Additional Insureds. The 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 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 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
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 PC)
during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the PC.
(a) Termination by the PC. The 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 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 PC, the PC may terminate this Agreement.
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 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 PC or any
shareholders thereof, except for the filing of a petition in
involuntary bankruptcy against the 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 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 PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the 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 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 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 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 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 PC; provided,
however, that all contracts or fees set for services on behalf of
the PC will be subject to final approval and acceptance by the
PC. Additionally, the 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 PC Account. The PC hereby irrevocably
appoints the MSO as the PC's attorney-in-fact, with full power
and authority in the place and stead of the PC, in the MSO's
discretion, to endorse in the name of the 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 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 PC under or by virtue
of this Agreement. Notwithstanding the foregoing powers of
attorney, the 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 PC's failure to sign said financing
statements, security agreements or other agreements, the MSO is
authorized as the agent of the PC to sign any such instruments.
The PC may review all deposits and expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the 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 PC. Since neither the PC nor its employees are employees
of the MSO, the MSO shall not withhold on behalf of the 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 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 PC shall retain all patient dental records maintained by the
PC or the MSO in the name of the PC. During the term of this
Agreement, and thereafter, the PC or its designee shall have
reasonable access during normal business hours to the 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 PC
may copy any or all such records.
13.3 The PC's Control Over the Orthodontic Practice.
Notwithstanding the authority granted to the MSO herein, the MSO
and the PC agree that the 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 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 PC. The PC shall have sole authority to
direct the business, professional, and ethical aspects of the 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 PC's
professional judgment. The MSO may, however, advise the PC as to
the relationship between its performance of orthodontic functions
and the overall administrative and business functioning of the
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 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 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 PC shall be given as follows:
6325 Topanga Canyon Boulevard, Suite 424
Woodland Hills ,CA 91367
Attn: Scott E. Feldman, D.D.S.
or such other address as may be furnished by the 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 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
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 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 PC under this Agreement
shall in any way or in any manner be deemed to create any
obligation of the MSO or of the 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, 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 PC to any
person, firm or corporation: (i) controlled by the MSO,
controlling the MSO or under common control with the MSO; or (ii)
with which the MSO has contracted for the sale, assignment or
other disposition, by merger, reorganization or otherwise, of all
or any substantial portion of its assets.
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.
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.
PC:
SCOTT E. FELDMAN, D.D.S.,
M.S., INC.
By:_______________________________
Scott E. Feldman, D.D.S.,
President
MSO:
OMEGA ORTHODONTICS OF
RESEDA, INC.
By:_______________________________
Robert J. Schulhof,
President
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Robert J. Schulhof,
President
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Scott E. Feldman, D.D.S.
19231 Victory Blvd., Suite 557
Reseda, CA 91335
SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
Those offices located at 19231 Victory Blvd., Suite 557, Reseda,
California 91335.
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 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 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 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 PC Account and allocate the proceeds between the MSO and the
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 PC (whether through subsidiaries or affiliates from its
operations and business at the Orthodontic Offices), including,
but not limited to, all fees and charges collected as a result of
professional orthodontic services furnished to patients by the PC
at the Orthodontic Offices and for any other goods or services
sold or provided to such patients.
EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
Not Applicable.
EXHIBIT B
PRACTICE PROVIDERS
Scott E. Feldman, M.S., D.D.S.
EXHIBIT C
PC'S AFFIDAVIT
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 Scott E. Feldman, D.D.S., M.S., Inc., (the "PC").
I have had substantial experience in the practice of
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 January 7,
1998, between the PC and Omega Orthodontics of Reseda, 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 19231 Victory Boulevard,
Suite 557, Reseda, California 91335 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 PC Thirty
Five Percent (35%) of "Practice Revenues" retained by the 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 Los Angeles, California this ___ day of
January, 1998.
___________________________
Scott E. Feldman. D.D.S.
STATE OF CALIFORNIA
___________________, ss January ___, 1998
Subscribed and sworn to before me this ___ day of
January, 1998.
[SEAL]
____________________________
Notary Public
My Commission Expires:
EXHIBIT D
SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 7th day of
January, 1998, by Scott E. Feldman, D.D.S., M.S., Inc., a
California professional corporation (the "PC"), and Scott E.
Feldman, D.D.S. ("Dr. Feldman") who is duly licensed to practice
orthodontics in the State and Omega Orthodontics of Reseda, 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 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 PC
pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed
by the PC under the Agreement (collectively, the "Obligations")
the 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 PC, together with all
proceeds thereof (collectively, the "Collateral");
WHEREAS, the 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 PC of the Obligations and any and all
amounts payable under this Security Agreement (collectively, the
"Secured Obligations"), the 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
PC to perform fully and on a timely basis all of the 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 PC represents
and warrants all of the accounts receivable constituting a
portion of the Collateral of the 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 PC. Further, the 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 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 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 PC hereby irrevocably authorizes the MSO to
sign and file financing statements naming the PC as the debtor
and the MSO as the secured party, at any time with respect to any
Collateral, without the signature of the PC. The PC hereby
irrevocably appoints the MSO as the PC's attorney-in-fact, with
full authority in the place and stead of the PC and in the name
of the 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 PC under or by virtue of the Collateral. Notwithstanding the
foregoing power of attorney, the 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 PC's failure to sign said Financing Statements, security
agreements or other agreements, the MSO is authorized as the
agent of the PC to sign any such instruments. Upon the request
of the MSO, the 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 PC. the MSO agrees,
however, that the 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;
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 PC under the Agreement; and
D. To the payment to the 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 Reseda, 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 PC
from time to time in writing.
Notices to the PC shall be given at:
19231 Victory Blvd., Suite 557
Reseda, CA 91335
Attn: Scott E. Feldman, D.D.S.
or other such addresses as may be delivered by the 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.
10. Additional Documents. The 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.
PC: MSO:
SCOTT E. FELDMAN, D.D.S., M.S., INC. OMEGA ORTHODONTICS
OF RESEDA, INC.
By:____________________________
By:__________________________
Scott E. Feldman, President Robert
J. Schulhof, President
Dr. Feldman:
_______________________________
Scott E. Feldman, D.D.S.
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 American Arbitration Association ("AAA"), with the assistance
of the AAA, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The PC and the MSO shall each bear 50% of the fees and
costs of the mediator and any fees and costs of the 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 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.
(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.
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 Rules of
Commercial Arbitration of the AAA. The arbitration shall be held
in Los Angeles, 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 the 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.
EXHIBIT 10.42
BOST1-636474-2
MANAGEMENT SERVICES AGREEMENT
AMONG
Richard H. Villa, D.M.D., PC
(the "PC")
AND
Omega Orthodontics of Virginia, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
TABLE OF CONTENTS
ARTICLE 1TERM 2
ARTICLE 2DUTIES OF THE MSO 2
2.1 General 2
2.2 Orthodontic Office Services 2
2.3 Administrative Services 3
2.4 Business Systems, Procedures and Forms 3
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 8
2.11 Accounting; Bookkeeping and Reports 8
2.12 Marketing 8
2.13 Complaints 8
2.14 Practice Laws 8
2.15 Monthly Meetings 9
2.16 Maintenance and Cleaning Services 9
2.17 Licenses and Permits 9
2.18 Insurance 9
2.19 Practice Transition and Associate Selection 9
ARTICLE 3 DUTIES OF THE PC 10
3.1 General 10
3.2 Employment of the Orthodontists and Rendering of Patient
Care 10
3.3 Professional Services 10
3.4 Records 10
3.5 Professional Expenses 11
3.6 Professional Liability Insurance 11
3.7 Employment Agreement 11
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION 12
ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT 12
ARTICLE 6 COMPENSATION 15
ARTICLE 7 SECURITY INTEREST 15
ARTICLE 8 COVENANTS 16
8.1 PC's Covenants 16
(f) 17
8.2 MSO's Covenants 18
ARTICLE 9 INSURANCE AND INDEMNITY 18
9.1 Insurance to be Maintained by the PC 18
9.2 Insurance to be Maintained by the MSO 18
9.3 Tail Insurance Coverage 18
9.4 Additional Insureds 18
9.5 Indemnification 18
10.1 Termination by the PC 19
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY 20
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP 21
ARTICLE 13 MISCELLANEOUS 21
13.1 Access to Records 21
13.2 Patient Records 21
13.3 The PC's Control Over the Orthodontic Practice 21
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION 22
14.1 Alternative Dispute Resolution 22
14.2 Waiver of Jury 22
ARTICLE 15 GENERAL PROVISIONS 23
15.1 Notices 23
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; Termination of Interim Management
Agreement 24
15.7 Assignment 24
15.8 Attorneys' Fees 25
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 26
15.16 Captions 26
15.17 Counterparts 26
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 31 st day of
December, 1997, by and among RICHARD H. VILLA, D.M.D., PC, a
professional corporation (the "PC") incorporated under the laws
of the Commonwealth of Virginia (the "State"), and OMEGA
ORTHODONTICS OF VIRGINIA, 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, the PC owns and operates an orthodontic practice
(the "Practice") with offices located in the facilities
identified in the lease attached hereto as Exhibit A (the
"Orthodontic Office") and furnishes and will furnish orthodontic
care to the general public through the services of Richard H.
Villa, D.M.D. ("Dr. Villa") who is duly licensed to practice
orthodontics in the State and any and all other orthodontists who
are or become affiliated with the PC as of or following the date
hereof and who are or become subsequently named on Schedule 1
hereto (individually, an "Orthodontist" and collectively, the
"Orthodontists");
WHEREAS, as of December 20, 1997, OMEGA, Dr. Villa and the
PC previously entered into that certain Interim Management
Agreement (the "Interim Management Agreement") pursuant to which
OMEGA agreed to provide certain services to the PC;
WHEREAS, the MSO was formed and acquired to provide
equipment, facilities and personnel to, and to manage the non-
orthodontic business affairs of, the PC;
WHEREAS, OMEGA, the PC and Dr. Villa have entered into that
certain Affiliation Agreement and Asset Purchase Agreement (the
"Affiliation Agreement") dated as of December 20, 1997, pursuant
to which the MSO will acquire certain assets of the PC;
WHEREAS, the PC and OMEGA desire to terminate the Interim
Management Agreement upon the effective date of the Affiliation
Agreement;
WHEREAS, the MSO's services are designed to improve the
efficiency and profitability of the PC while enhancing the
ability of Dr. Villa and the Orthodontists (if any) to render
quality orthodontic care to the patients of the PC;
WHEREAS, the PC wishes to retain the MSO to perform the
functions and to provide the services described in this Agreement
to assist the PC to achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform
managerial and administrative services for the PC and provide
office space and orthodontic facilities appropriate for rendering
general orthodontic treatment at the Orthodontic Office upon the
following terms and conditions:
ARTICLE 1
TERM
1.1 The initial term of this Agreement shall commence on
the date first above written and continue for a period of twenty
(20) years (the "Initial Term"), subject, however, to earlier
termination in accordance with Article 10 hereof. This Agreement
shall continue for two separate and successive ten (10) 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 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 PC with
comprehensive practice management, financial and marketing
services, and such facilities, equipment, and support personnel
as are reasonably required by the PC to operate its Practice at
the Orthodontic Office, as determined by the MSO in consultation
with the PC. The PC hereby appoints the MSO as the sole and
exclusive business manager of the PC and agrees that the MSO
shall have all power and authority reasonably necessary to manage
the non-orthodontic business affairs of the PC and carry out the
MSO's 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 Office. The PC
acknowledges and agrees that the MSO may subcontract with other
persons or entities, including any entities related to the MSO by
ownership or control, to perform any part or all of the services
required of the MSO hereunder.
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 Office and
related fixtures, furniture, furnishings, equipment and related
services (collectively, the "Orthodontic Office Services")
described in Schedule 2 attached hereto and incorporated by
reference, as such Schedule may be amended by the PC and the MSO
from time to time. The MSO shall be responsible for all repairs,
maintenance and replacement of the Orthodontic Office including
such leasehold improvements, fixtures, furniture, furnishings and
equipment, except for repairs, maintenance and replacement
necessitated by the negligence of the 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 PC
on the equipment needs of and the efficiency and adequacy of the
Orthodontic Office. 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 PC, to enable
the 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 PC. The PC shall have sole authority to employ and
terminate the employment of all Practice Providers. All
personnel placed in the Orthodontic Office by the MSO shall be
subject to the approval of the PC, which approval shall not be
unreasonably withheld, and the 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 (excluding wages for Practice Providers and
clinical personnel, such as hygienists and laboratory
personnel), withholding, fringe benefits, bonuses and workers'
compensation insurance in connection with its employees;
provided, however, that the 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. Villa and the Orthodontists (if any)
and other individuals who are employees of the PC or otherwise
under contract with the PC to provide dental or orthodontic,
hygienic or other assistance or services to patients of the PC or
otherwise required by applicable "Laws" (as defined in Section
2.6 below) to be employees of the PC to provide services to
patients of the Practice. A list of all Practice Providers and
their relationship to the 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 PC shall use its
best efforts to consult with the MSO. The PC also shall use its
best efforts to consult with the MSO with regard to the terms of
contracts entered into between the 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 PC, the MSO shall establish standardized
business systems and procedures for the PC, including, but not
limited to, patient scheduling systems, treatment records
systems, financial reporting and process control systems and
patient communication management systems including any amendments
from time to time (the "OMEGA Patient Scheduling System"), that
are designed to improve the PC's operating efficiency. The MSO
shall analyze such information on an ongoing basis in order to
advise the PC on ways of improving operating efficiencies. The
MSO shall provide training to the staff of the PC in the
implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the
PC with and train the PC's staff in the use of standardized
clinical forms, including, without limitation, forms for patient
evaluations and treatment plans. The 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 8.1 hereof
and be subject to the restrictions on the use, appropriation, and
reproduction of such Confidential Information provided for in
Section 8.1.
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 PC. The MSO
shall order and purchase and maintain all inventory and
orthodontic supplies as reasonably required by the PC to enable
the 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 PC such business, legal and
regulatory management consultation and advice as may be
reasonably required or requested by the PC and directly related
to the operations of the PC or its compliance with Federal, state
or local laws, rules, regulations or interpretations governing or
applicable to the 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 PC or its compliance
with Laws, or for any legal or tax advice or services or personal
financial services to Dr. Villa and the Orthodontists (if any) or
any employee or agent of the 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 PC and the Practice
Providers, with all such billing and collecting to be done in the
name of the 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 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 PC's behalf. In
seeking payments on behalf of the PC hereunder, the MSO shall act
as the PC's agent in billing and collecting professional fees,
charges and other accounts owed to the PC and shall only bill
under the PC's provider number. In this regard, the 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 PC as a result of any
inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the PC by the MSO
pursuant to Section 2.7 above shall be deposited into an account
(the "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 PC (the "Bank"). The PC Account
shall contain the name of the PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so
disbursed from the PC Account.
(b) From the funds collected and deposited by the MSO
in the PC Account, the MSO shall make for and on behalf of the PC
the following disbursements promptly, when payable:
(1) Compensation, including salaries, benefits
and other direct costs payable to Dr. Villa and the Orthodontists
(if any) and the other Practice Providers of the 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 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 PC
the necessary funds to pay the current portion of such expenses
for the benefit of the PC, which advances will be deemed to be
loans to the PC to be repaid without interest from the 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 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 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 PC,
including, without limitation:
(1) Salaries, benefits and other direct costs of
all employees of the MSO providing services to the PC hereunder
(but excluding Dr. Villa and all the Orthodontists (if any) and
other Practice Providers);
(2) (i) Salaries, benefits and other direct costs
of all employees of the PC (other than Dr. Villa and all the
Orthodontists (if any) and other Practice Providers), for
services provided on and after the commencement date of this
Agreement, and (ii) to the extent not paid by OMEGA under the
Interim Management Agreement, all such costs of such employees
for services provided on and after the commencement date of the
Interim Management Agreement and prior to the commencement date
of this Agreement, excluding any and all costs of such employees
of the PC which are compensation for services rendered by such
employees prior to the commencement date of the Interim
Management Agreement. To the extent any such excluded costs are
paid by OMEGA or the MSO, as the case may be, the MSO shall be
entitled to offset such amounts against any amounts to be paid by
the MSO to Dr. Villa pursuant to Schedule 3 of this Agreement;
(3) Direct costs of all employees or consultants
of the MSO who provide services at the Orthodontic Office or in
connection with the PC required for improved clinic performance,
such as work management, materials management, purchasing, charge
and coding analysis, and business office consultation;
(4) Accounts payable of the PC (not including
payroll, "Accounts Payable") which have accrued prior to the
commencement date of the Interim Management Agreement and which
remain unpaid as of the commencement date of this Agreement, but
only to the extent that such Accounts Payable do not exceed one-
half (1/2) of one "Average" month of Accounts Payable of the PC
(the term "Average" shall mean an average of the Accounts Payable
of the PC using the last 12 months prior to the end of the month
immediately preceding the commencement date of the Interim
Management Agreement);
(5) Direct costs associated with operating the
Orthodontic Office, including without limitation, utilities,
cleaning and maintenance;
(6) Obligations of the MSO under leases or
subleases entered into in connection with the operation of the
Orthodontic Office as well as utility expenses relating to the
Orthodontic Office;
(7) Personal property and intangible property
taxes assessed against the MSO's assets used in connection with
the operation of the Orthodontic Office, commencing on the date
of this Agreement;
(8) In the event an opportunity arises for
additional Orthodontists to become employed by the PC or other
orthodontic entities to merge with the 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;
(9) 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 PC, Dr. Villa 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. Villa 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 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 PC other
than as otherwise expressly provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the 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 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 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 PC.
Notwithstanding the foregoing, the cost of any "lump sum"
payments, including but not limited to bonuses, accrued but
unpaid sick leave and other similar payments, made to employees
of the PC (other than the individuals who are duly licensed to
practice dentistry and/or orthodontics in the State and other
individuals who are employees of the PC or otherwise under
contract with the PC to provide dental or orthodontic, hygienic
or other assistance or services to patients of the PC or
otherwise required by applicable Laws to be employees of the PC
to provide services to patients of the Practice) and to employees
of the MSO shall be shared equally by the PC and the MSO.
As used in this Section 2.9, "Approved Budget" means, for
each fiscal year, the aggregate maximum amount that the MSO will
reimburse the 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
PC and the MSO agree that the aggregate maximum annual amount
shall be $5,000.
2.10 Credit Reports. When requested by the PC, or its
authorized representative, the MSO shall obtain on behalf of the
PC information with regard to the ability of patients to pay for
the services to be rendered by the 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 PC, either in
cash or by insurance. Such determination shall be subject to the
reasonable approval by the PC, and as between the PC and the MSO,
the 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 PC's operations, provided that such
services are incurred in the ordinary course of business. In
addition, the MSO shall provide the 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 related to the PC, as well as the books and records of
the PC, all prepared by or with the assistance of an accountant
chosen by the MSO. At the end of each fiscal year of the PC, the
MSO shall arrange for a financial statement with respect to the
PC to be prepared by the MSO's accountant. At the 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 PC. The MSO shall assist and advise the PC in
the financial management of the PC.
2.12 Marketing. The MSO shall design and execute a
marketing plan to promote the PC's professional services. The
MSO shall also make available to the PC all brochures, contracts,
and other materials reasonably related to the carrying out of the
business purposes of the PC, including all stationery, printing
and postage costs in connection therewith. In connection with
such marketing plan, the MSO shall advise Dr. Villa 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 PC in handling
all complaints, grievances and disputes involving the PC and the
Practice Providers and any patients or third parties. However,
the MSO shall have no control over the PC's patients. All
decisions concerning the PC's patients shall be made by the 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 any Law 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 PC regarding the policies and
procedures for the operation of the PC.
2.16 Maintenance and Cleaning Services. The MSO shall
arrange for security, maintenance and cleaning of the Orthodontic
Office, 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 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 and with respect to the PC's employees (other than Dr.
Villa and all the Orthodontists (if any) and other Practice
Providers).
2.18 Insurance. The MSO shall provide and pay for customary
office property damage and liability insurance, including
business interruption insurance, not including professional
liability insurance (which shall be and remain the responsibility
of the PC).
2.19 Practice Transition and Associate Selection. Dr. Villa
and the Orthodontists (if any) shall keep the MSO informed of
retirement goals on an ongoing basis. Upon request of the 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 PC. The PC shall be responsible for
interviewing and selecting each Practice Associate. After the
Practice Associate(s) is (are) selected by the PC, the MSO will
assist the 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 PC or the new Practice Associate may
terminate the relationship. All such Practice Associates
recruited by the MSO as may be accepted by the PC shall be
employees of the PC (if so employed) and not of the MSO. The MSO
will confer with the PC on an appropriate salary/work-in
arrangement for a new Practice Associate and the final
arrangements shall be determined by the PC.
ARTICLE 3
DUTIES OF THE PC
3.1 General. The 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 PC shall be responsible for the employment and
professional supervision of Dr. Villa and all Orthodontists and
the other Practice Providers and all orthodontic care rendered to
patients shall be rendered by Dr. Villa and such Orthodontists.
Additionally, the PC shall be responsible for the professional
supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The PC shall use and occupy the
Orthodontic Office 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
Practice conducted at the Orthodontic Office shall be conducted
solely by Dr. Villa and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr. Villa
and the Orthodontists (if any), and no other orthodontist shall
be permitted to use or occupy the Orthodontic Office. The PC
shall provide professional services to patients hereunder in
compliance at all times with ethical standards and Laws applying
to the orthodontic profession. The PC shall ensure that Dr.
Villa 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
or threatened against Dr. Villa or any Orthodontist or other
Practice Provider, the PC shall immediately inform the MSO of
such action and the underlying facts and circumstances, subject
to such confidentiality agreement or arrangements as the PC and
the MSO shall mutually determine at or prior to the time of such
disclosure. The 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 PC at once to
remedy such deficiencies.
3.4 Records. The 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
PC, to obtain payments for services and related charges and to
facilitate the delivery of quality patient care by the PC.
Notwithstanding the foregoing, patient dental records shall be
and remain the property of the PC and the contents thereof shall
be solely the responsibility of the PC.
3.5 Professional Expenses. The 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 PC. The MSO shall
reimburse the PC for such expenses in accordance with the
Approved Budget. The PC shall ensure that Dr. Villa and all the
Orthodontists employed by the PC participate in such continuing
education as is necessary for Dr. Villa and such Orthodontists to
remain current.
3.6 Professional Liability Insurance. The 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 PC shall also cooperate in any programs recommended by the
MSO to assure that each of its Orthodontists is insurable, and
that Dr. Villa 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 PC
operates an active orthodontic practice to which it, Dr. Villa
and each Orthodontist associated with the PC devote their full
time and attention, unless other specific provisions are made in
writing and mutually agreed upon by the MSO and PC. The PC will
cause Dr. Villa and each individual Orthodontist who now is or
hereafter becomes affiliated with the PC to enter into a written
employment agreement (the "Employment Agreement") satisfactory in
form and substance to the MSO, pursuant to which Dr. Villa or the
Orthodontist shall agree not to establish, operate or provide
orthodontic or dental services, without the prior written consent
of both the 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. Villa's or such Orthodontist's employment shall terminate for
any reason during the Term of this Agreement, for a period of 18
months after the termination of Dr. Villa's or such
Orthodontist's Employment Agreement with the PC, Dr. Villa or
such Orthodontist shall agree not to establish, operate or
provide orthodontic or dental services, without the prior written
consent of both the PC and the MSO, at any office practice or
facility whatsoever providing services similar to those provided
by the 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. Villa's or the Orthodontist's agreement not to compete
with the 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.
Villa's or such Orthodontist's income, as shown on the W-2 form
prepared by the PC, for the most recent calendar year; or (b)
$300,000. Such payment shall be made to the MSO by the PC
immediately following receipt of the payment from Dr. Villa or
the breaching Orthodontist by the PC. Each of the MSO and OMEGA
shall be expressly named as a third-party beneficiary to such
agreements between the PC and Dr. Villa 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.
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 by the PC shall be
separate and independent from the provision of administrative,
management and support services by the MSO. Thus, the PC shall
have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the
Orthodontic Office.
4.2 No employee or other representative of the MSO shall be
engaged in solicitation of, or allowed to solicit, patients on
behalf of the PC, nor shall the MSO have any control over the
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 PC shall be used or distributed without
having first been approved by the 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 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 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 PC during the Term of this
Agreement the Orthodontic Office, and the leasehold improvements
and fixtures, furniture and equipment at the Orthodontic Office
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 a lease
for the premises occupied by the PC (collectively, the "Master
Lease") a copy of which is attached hereto as Exhibit A and
incorporated herein by this reference. The PC hereby
acknowledges that the premises described under the Master Lease
are suitable for the PC's orthodontic practice. Based and
contingent upon the PC's promise to timely pay all amounts due
under this Agreement, the MSO hereby agrees to sublease the
leased premises to the PC upon the following terms and
conditions:
(i) This sublease between the MSO and the 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 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 PC,
respectively) and, along with the provisions of this Section
5.1(a) 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 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, or
the sections containing provisions relating to the subjects
described in such titles, as the case may be, all of which
obligations shall be considered MSO Expenses hereunder and the PC
shall have no monetary obligation in that regard. In addition,
as between the MSO and the 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 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 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 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 PC's tenancy or the MSO's
rights and remedies as Sub-Lessor.
5.2 The MSO shall provide the PC at the Orthodontic Office
such additional leasehold improvements, fixtures, furniture,
furnishings and equipment as may be mutually agreed to with the
PC and reflected from time to time on a supplement to Schedule 2
attached hereto and incorporated by reference. The use by the 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 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
(other than repairs and maintenance necessitated by the
negligence of the PC, its employees and agents (not including the
MSO or its employees or agents)); provided, however, that the 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.5.3. No Warranty.
(a) THE 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 in writing and
signed by the 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 certain assets of the PC,
acquiring or otherwise establishing the Orthodontic Office,
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 Office is located. The MSO has also assumed
substantial obligations associated with the continuing operation
of the Orthodontic Office, including those of lessee, obligor and
guarantor and obligor on loans to establish and operate the
Orthodontic Office. 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 PC acknowledges that the compensation arrangement
is reasonable under the circumstances noted herein and Dr. Villa
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 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 PC specifically agrees that the MSO
may defer actual receipt of its Management Fees and/or advance
monies for purposes of managing the 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 PC pursuant to this Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed
by the PC under this Agreement, the 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
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 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 PC expressly agrees
to execute and deliver any appropriate UCC-1 Financing Statement
and UCC-1 Fixture filings, if so requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 PC's Covenants. As further consideration for the MSO's
performance of the terms and conditions of this Agreement, the PC
covenants, represents and warrants as follows (which covenants,
representations and warranties shall survive the execution of
this Agreement):
(a) The PC shall comply with all Laws and ethical and
professional standards applicable to the practice of orthodontics
and cause all of its employees to do the same.
(b) The PC shall provide quality services and shall
cause Dr. Villa and the Orthodontists (if any) to serve the
orthodontic needs of the patients of the PC. The PC covenants to
monitor rigorously utilization and quality of services provided
at the Orthodontic Office 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 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 Office, 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 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,
computer software, related materials and other information, as
amended from time to time (collectively, the "MSO Information"),
regarding such systems. The PC acknowledges and agrees that all
information, whether imparted orally or in writing, relating to
the OMEGA Patient Scheduling System and the MSO Information
(collectively the "Confidential Information") constitutes trade
secrets of OMEGA and/or the MSO. The PC hereby waives any and
all right, title and interest in and to such Confidential
Information. Upon expiration or termination of this Agreement by
either party for any reason whatsoever, the PC, at its expense,
shall immediately return and shall cause its shareholders,
directors, officers, affiliates, partners, employees and
independent contractors to immediately return to OMEGA or the
MSO, as applicable, all Confidential Information, and the PC will
not, and will cause its shareholders, directors, officers,
affiliates, partners, employees and independent contractors not
to, thereafter use, appropriate, disclose, or reproduce such
Confidential Information.
(e) The 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 PC
further agrees and acknowledges that the Confidential Information
is disclosed in confidence and with the understanding that it
constitutes valuable business information developed by the MSO
with the assistance of OMEGA, or OMEGA, as the case may be, at
great expenditures of time, effort and money. The PC agrees to
hold in trust and keep strictly confidential the Confidential
Information and not to disclose it or allow it to be disclosed
directly or indirectly to any person or entity other than persons
who are engaged by the PC to perform duties in connection with
the PC and who have a need to know such Confidential Information
in the performance of their duties for the PC, without OMEGA's or
the MSO's prior written consent, as the case may be. The 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 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 Information or trade secrets obtained by
the PC. The 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. The 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.
(f) The PC further expressly acknowledges and agrees
that any use, appropriation, disclosure or reproduction of any
Confidential Information in breach or violation of any of the
representations or covenants of this Section 8.1 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, disclosure 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 relief, including specific performance, or
other equitable relief without the necessity of proving actual
damages or posting any bond or other security, 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.
8.2 MSO's Covenants. As further consideration for the 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 Office,
without the express written consent of the PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the PC. Throughout the
Term of this Agreement, the 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 for Dr. Villa and each of the Orthodontists providing
services for the PC and a separate limit for the PC. The 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 PC with respect to such insurance. Deductibles
with respect to such policies shall not be MSO Expenses. The MSO
shall reimburse the PC for premiums in accordance with the
Approved Budget. The PC also agrees to name the MSO and OMEGA
as co-insureds. The 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 an 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 PC will cause Dr. Villa
and each Orthodontist (if any) providing services to enter into
an agreement with the PC that upon termination of Dr. Villa's or
such Orthodontist's relationship with the PC, for any reason,
tail insurance coverage will be purchased by Dr. Villa or such
Orthodontist. Such provisions may be contained in an employment
agreement, restrictive covenant agreement or other agreement
entered into by the PC and Dr. Villa or the Orthodontist, and the
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 PC or Dr. Villa or each such
Orthodontist.
9.4 Additional Insureds. The 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 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 (including reasonable attorneys' fees),
judgments, settlements, lawsuits and obligations, 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 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
PC, its officers, directors, shareholders and employees, from and
against any and all liability, loss, damage, claim, causes of
action, expenses (including reasonable attorneys' fees),
judgments, settlements, lawsuits and obligations, 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
any intentional acts, negligent acts or omissions by the MSO
and/or its shareholders, agents, employees and/or subcontractors
(other than the PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the PC. The PC 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 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 PC may give
written notice of the immediate termination of this Agreement.
(b) 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 PC, the PC may terminate this Agreement.
10.2 Termination by the MSO. The 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 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 PC or any
shareholders thereof, except for the filing of a petition in
involuntary bankruptcy against the 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 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 PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the 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 PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Dr. Villa or any Orthodontist
breaches or defaults under his or her Employment Agreement and
the PC does not cause Dr. Villa 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 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 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 PC; provided,
however, that all contracts or fees set for services on behalf of
the PC will be subject to final approval and acceptance by the
PC. Additionally, the 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 PC Account. The PC hereby irrevocably
appoints the MSO (and its designees) as the PC's attorney-in-
fact, with full power and authority in the place and stead of the
PC, in the MSO's discretion, to endorse in the name of the 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 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
PC under or by virtue of this Agreement. Notwithstanding the
foregoing powers of attorney, the 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 PC's failure
to sign and deliver said financing statements, security
agreements or other agreements, the MSO is authorized as the
agent of the PC to sign any such instruments. The PC may review
all deposits and expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the PC nor its employees or Practice Providers shall
have any claim under this Agreement or otherwise against the MSO
for workers' 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 PC. Since neither the PC nor its employees
are employees of the MSO, the MSO shall not be obligated to make
any withholding tax payments on behalf of the PC for 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 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 PC shall retain all patient dental records maintained by the
PC or the MSO in the name of the PC. During the term of this
Agreement, and thereafter, the PC or its designee shall have
reasonable access during normal business hours to the 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 PC
may copy any or all such records.
13.3 The PC's Control Over the Orthodontic Practice.
Notwithstanding the authority granted to the MSO herein, the MSO
and the PC agree that the PC, personally or through Dr. Villa or
any of its Orthodontists (if any) and other Practice Providers,
shall have complete control and supervision over the professional
aspects of the 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 PC. The PC shall have sole authority to direct the
business, professional, and ethical aspects of the 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 PC's professional
judgment. The MSO may, however, advise the PC as to the
relationship between its performance of orthodontic functions and
the overall administrative and business functioning of the 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 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 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 PC shall be given as follows:
Richard H. Villa, D.M.D., PC
10120 West Broad Street Road, Suite L
Glen Allen, Virginia 23060
Attn: Richard H. Villa, D.M.D.
or such other address as may be furnished by the 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 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 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 PC and the
MSO shall amend this Agreement as necessary to comply with such
Laws. To the maximum extent possible, any such amendment shall
preserve the underlying economic and financial arrangements
between the 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 PC under this Agreement
shall in any way or in any manner be deemed to create any
obligation of the MSO or of the 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; Termination of Interim Management
Agreement. This Agreement including the Schedules and Exhibits
hereto, the Affiliation Agreement, including any schedules,
exhibits and related agreements thereto, the Stock Put/Call
Option and Successor Designation Agreement of even date herewith
by and among the PC, Dr. Villa, OMEGA and the MSO, including any
schedules, exhibits and related agreements thereto, and the
Employment Agreement(s) (including the related non-competition
agreements or covenants), constitute 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,
including but not limited to the Interim Management Agreement.
Upon execution of this Agreement, the Interim Management
Agreement shall terminate and all provisions and terms thereof
shall become null and void, except as otherwise provided herein.
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 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.
15.13 Amendments. This Agreement may be supplemented,
modified or amended only by the written consent of all parties
hereto, except as otherwise provided herein.
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 as 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 any party to this
Agreement of any one or more defaults, if any, on the part of any
other party, shall not be construed to operate as a waiver of any
other or future defaults under this Agreement. No waiver shall
be binding unless executed in writing by the party making the
waiver.
15.16 Captions. Captions to sections in this Agreement
are for ease of reference, and shall not be considered an
interpretation of the section.
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.
PC:
RICHARD H. VILLA, D.M.D., PC
By: /s/ Robert J. Schulhof
Richard H. Villa,
President
MSO:
OMEGA ORTHODONTICS OF
VIRGINIA, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof,
President
OMEGA:
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Richard H. Villa, D.M.D.
10120 West Broad Street Road, Suite L
Glen Allen, Virginia 23060
SCHEDULE 2
ORTHODONTIC OFFICE AND
ORTHODONTIC OFFICE SERVICES
[Dr. Villa Attach]
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO and the PC have agreed that upon receipt of the
Practice Revenues each month, the compensation shall be paid to
the MSO and the 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 $2,500 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 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 twenty-five percent (25%) of Practice Revenue
collected for such month less $2,500.
At the end of each quarter during the Term the MSO shall
provide the 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 quarter, fifty (50%) percent of
such difference shall be returned by the MSO to the 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 under the Agreement. The MSO shall distribute the
proceeds from the PC Account and allocate the proceeds between
the MSO and the 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 to the Agreement may agree to
handle such matters in a different manner.
For purposes of the Agreement, "Practice Revenues" shall
mean gross collections of all revenues generated by or on behalf
of the PC (whether through subsidiaries or affiliates),
including, but not limited to, all fees and charges collected as
a result of professional dental or orthodontic services furnished
to patients by the PC and for any other goods or services sold or
provided to such patients.
Notwithstanding 3(a) above, each month during the term of
the Agreement, the PC shall be entitled to a draw of the greater
of the amounts payable under 3(a), or $__________. If 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 PC under this Schedule shall be
reconciled at the end of each year.
EXHIBIT A
ORTHODONTIC OFFICE - MASTER LEASE
[Dr. Villa Attach]
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Villa Attach]
EXHIBIT C
PC'S AFFIDAVIT
AFFIDAVIT
I, Richard H. Villa, D.M.D., declare:
I am an orthodontist, duly licensed in the Commonwealth of
Virginia and I practice through a professional corporation under
the name Richard H. Villa, D.M.D., PC (the "PC").
I have had substantial experience in the practice of
orthodontics and in managing and operating an orthodontic office
located at 10120 West Broad Street Road, Suite L, Glen Allen,
Virginia 23060 (the "Orthodontic Office").
In the course of operating the Orthodontic Office, I have
acquired significant knowledge as to the overhead costs incurred
and gross receipts generated by similar types of orthodontic
office. 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 operations.
I have thoroughly reviewed the Management Services Agreement
(the "Agreement"), which is effective as of ________________,
1997, among between the PC, Omega Orthodontics, Inc. and Omega
Orthodontics of Virginia, 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 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 $2,500 per month plus the excess of Twenty-Five Percent (25%)
of "Practice Revenues" in excess of $2,500 per month 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 Twenty-Five
Percent (25%) of "Practice Revenues" retained by the 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.
___________________________
Richard H. Villa, D.M.D.
COMMONWEALTH OF VIRGINIA )
) ss
________________________________________ __)
________________________, 1997
Then personally appeared the above-named Richard H. Villa,
D.M.D. and acknowledged the foregoing Affidavit to be his free
act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
EXHIBIT D
SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 31st day of
December 1997, by Richard H. Villa, D.M.D., PC, a Virginia
professional corporation (the "PC"), and Richard H. Villa, D.M.D.
("Dr. Villa") who is duly licensed to practice orthodontics in
the Commonwealth of Virginia (the "State") and Omega
Orthodontics of Virginia, 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, among the PC, Omega
Orthodontics, Inc., a Delaware corporation 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 PC pursuant to
the Agreement and for the faithful and timely performance of all
the covenants and conditions to be performed by the PC under the
Agreement (collectively, the "Obligations") the 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 PC, together with all proceeds thereof
(collectively, the "Collateral");
WHEREAS, the 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 or performance as the case may be by the PC
of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the
PC hereby pledges, grants, bargains, assigns and transfers to the
MSO, a security interest in, the Collateral. Dr. Villa shall
cause the PC to perform fully and on a timely basis all of the
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 PC represents and
warrants all of the accounts receivable constituting a portion of
the Collateral of the 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 PC. Further, the 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 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 obligations of a
secured party under the Uniform Commercial Code as adopted in 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 PC hereby irrevocably authorizes the MSO to
sign and file financing statements naming the PC as the debtor
and the MSO as the secured party, at any time with respect to any
Collateral, without the signature of the PC. The PC hereby
irrevocably appoints the MSO as the PC's authorized agent and
lawful attorney-in-fact, with full authority in the place and
stead of the PC and in the name of the 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 PC under or by virtue
of the Collateral. Notwithstanding the foregoing power of
attorney, the PC shall at any time upon the request of the MSO,
sign and deliver financing statements, security agreements or
other agreements with respect to any Collateral. Upon the PC's
failure to sign and deliver said financing statements, security
agreements or other agreements, the MSO is authorized as the
agent of the PC to sign any such instruments. Upon the request
of the MSO, the 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 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 PC. The MSO agrees, however, that the 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;
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 PC under the Agreement; and
D. To the payment to the 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 Virginia, 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 PC
from time to time in writing.
Notices to Dr. Villa or the PC shall be given at:
Richard H. Villa, D.M.D., PC
10120 West Broad Street Road, Suite L
Glen Allen, Virginia 23060
Attn: Richard H. Villa, D.M.D.
or other such addresses as may be delivered by the 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.
10. Additional Documents. The 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.
PC: MSO:
RICHARD H. VILLA, D.M.D., PC OMEGA ORTHODONTICS
OF
VIRGINIA, INC.
By:____________________________
By:__________________________
Richard H. Villa, President Robert J.
Schulhof, President
Dr. Villa:
_______________________________
Richard H. Villa, D.M.D.
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 American Arbitration Association ("AAA"), with the assistance
of AAA, unless the parties agree otherwise in finding a mutually
acceptable mediator.
5. The PC and the MSO shall each bear 50% of the fees and
costs of the mediator and any fees and costs of the 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 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.
(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.
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 Rules of
Commercial Arbitration the AAA. The arbitration shall be held in
Los Angeles, 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 the 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.
EXHIBIT 10.43
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 Richard H. Villa, D.D.S., Inc., a
professional corporation (the "PC") incorporated under the laws
of the Commonwealth of Virginia (the "State"); Richard H. Villa,
D.D.S. ("Dr. Villa") who is duly licensed to practice
orthodontics in the State; Omega Orthodontics, Inc., a Delaware
corporation ("OMEGA"); and Omega Orthodontics of Virginia, Inc.,
a Delaware corporation (the "MSO"), 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 services organizations such as the
MSO.
B. OMEGA holds all of the capital stock of the MSO and
acquired certain assets used in the management of the PC pursuant
to the terms of that certain Affiliation Agreement and Asset
Purchase Agreement (the "Affiliation Agreement").
C. The PC owns and operates an orthodontic practice with
offices located in the facility identified in Exhibit A (the
"Orthodontic Office") and furnishes orthodontic care to the
general public through the services of Dr. Villa affiliated with
the PC.
D. The 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 PC.
E. Dr. Villa owns all of the capital stock (the "Capital
Stock") of the 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. Villa's
right, title, interest and estate in and to all of the issued and
outstanding stock in the 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. Dr. Villa has agreed to grant to the MSO, and the MSO
desires to acquire from Dr. Villa 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.
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 PC, Dr. Villa, 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 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 Office,
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 of 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 Office, 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. Villa 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 Office.
If the MSO desires to exercise its Put Option, the MSO shall give
written notice of such election to the PC and Dr. Villa 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 PC shall have the option (the "Call
Option") to require the MSO, upon termination of the Management
Services Agreement by the PC under Section 10.1 thereof, to:
(a) Sell to the PC all of the leasehold improvements,
fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Office, 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 Office, 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 PC,
the restrictive covenants provided for in Section 3.7 of the
Management Services Agreement and in the applicable Employment
Agreement with Dr. Villa 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 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 Office.
If the PC desires to exercise its Call Option, the PC shall give
written notice of such election (the "Call Option Notice") 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 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. Villa under Section
2.1(b)(i) of the Affiliation Agreement, plus (y) the original
principal amount of the Purchase Note issued to Dr. Villa 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. Villa 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 (closing) price for Omega's
Common Stock on Nasdaq (or a national securities exchange) for
the five (5) trading days ending on the Friday 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 PC of the Call Option under Section 3, as the
case may be, shall be at the offices of Miller & Holguin, 1801
Century Park East, Suite 700, Los Angeles, California 90067, 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 at such other location and on such other date as the
parties may mutually determine. At the Closing, the PC, at its
election, shall pay cash, or a combination of cash, cancellation
of the Purchase Note if the amount payable thereunder has not
been previously paid, and return of the shares of Omega Common
Stock received by Dr. Villa under Section 2.1(b)(iii) of the
Affiliation Agreement, such shares to be valued as provided for
in Section 3 hereof, pursuant to exercise by the MSO of the Put
Option or the PC of the Call Option, as the case may be. The PC
and Dr. Villa 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 PC's 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. Villa:
(i) the death of Dr. Villa;
(ii) if Dr. Villa is determined to be permanently
disabled so as to be unable to render any professional services
on behalf of the PC, as determined in accordance with paragraph
(b) of this Section 5 below;
(iii) if Dr. Villa 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 PC;
(iv) if Dr. Villa acts in a criminal or grossly
negligent manner with respect to the performance of professional
orthodontic services rendered or to be rendered on behalf of the
PC;
(v) if Dr. Villa becomes hospitalized for
alcohol or drug abuse;
(vi) if Dr. Villa is convicted of a felony;
(vii) if Dr. Villa loses his license or is
otherwise determined to be disqualified from rendering services
as an orthodontist for the PC by the applicable dental or other
comparable regulatory board of the State;
(viii) if Dr. Villa'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. Villa 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. Villa 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. Villa and such involuntary
petition, assignment, attachment or interest is not discharged
within sixty (60) days after creation;
(xi) if Dr. Villa 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. Villa retires within the meaning
of Clause (c) of this Section 5; or
(xiii) if Dr. Villa 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. Villa from performing his duties competently and
adequately as determined by the MSO, or (ii) substantially
impairs the PC's or Dr. Villa's ability to practice orthodontics.
(c) For purposes hereof, Dr. Villa shall "Retire" on
the date when Dr. Villa voluntarily withdraws from the practice
of orthodontics at whatever age or for whatever reason and
notifies the 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. Villa (or his
successor or representative), specifying the name and address and
including information showing the qualifications and suitability
of the Designated Successor to conduct or perform professional
services on behalf of the PC and number of shares of Capital
Stock of Dr. Villa 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) through (xiii) as to all of the shares of Capital Stock
of Dr. Villa, Dr. Villa 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. Villa
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
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. Villa 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. Villa 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 PC on such terms and conditions as may be
approved by the MSO, and (ii) upon Dr. Villa 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 any such 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 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. Villa (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. Villa. The
note shall be for a term of five (5) 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 (5) equal annual
installments commencing six months after the closing date.
(c) Purchase From Dr. Villa's Estate.
(i) Upon the death of Dr. Villa and receipt of a
Successor Designation Exercise Notice, Dr. Villa's personal
representative shall apply for and obtain any necessary court
approval or confirmation of the sale of Dr. Villa's shares of
Capital Stock pursuant to this Agreement. The representative of
the estate of Dr. Villa 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. Villa's spouse, if any,
shall not be considered the death of Dr. Villa for purposes of
this Agreement.
(iii) The estate of Dr. Villa shall bear, and
hold the 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. Villa to transfer to the Designated Successor full
legal and equitable tax-free title to the Capital Stock of Dr.
Villa.
(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, 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. Villa
hereby consents to the acquisition and maintenance in force of a
disability insurance policy and a life insurance policy on Dr.
Villa ("Insurance Policies"). The life insurance policy may be
in an aggregate face amount of up to three times Dr. Villa's
income, as shown on the W-2 Form prepared by the PC for the most
recent calendar year. Dr. Villa 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 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 PC and Dr. Villa 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 B 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) No Sales or Other Dispositions. 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. Villa 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. Villa shall not permit the PC to, and the PC shall not,
during the term of this Agreement, issue any stock, other equity,
or debt of the PC; permit any change in the composition or
respective percentage ownership of the 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. Villa 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. Villa. Upon
execution of this Agreement, Dr. Villa 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.
Villa. 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
PC, the holder hereof and the MSO and OMEGA (as defined
therein). The PC will mail without charge to any
holder of these shares a copy of such agreement within
five (5) days of receipt by the 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 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. Villa.
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 PC, Dr. Villa, 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: (i)
upon the expiration of six (6) months after the termination of
the Management Services Agreement; or (ii) upon 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 PC and Dr. Villa 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 PC and Dr. Villa 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 purchaser 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 PC
or Dr. Villa 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
hereto, 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 PC or Dr. Villa:
Richard H. Villa, D.D.S.
10120 West Broad Street Road, Suite L
Glen Allen, Virginia 23060
If to the 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 as 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 PC, Dr. Villa 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 exhibits 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.
(a) General.
(i) 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 clause (a)(ii) 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.
(ii) 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.
(b) 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 PC, Dr. Villa, MSO and OMEGA have
executed this Agreement as of the date first above written by
their duly authorized representatives as set forth below.
"PC"
RICHARD H. VILLA, D.D.S., INC.
a Virginia professional corporation
By: /s/ Richard H. Villa
Richard H. Villa, President
"Dr. Villa"
/s/ Richard H. Villa, D.D.S.
Richard H. Villa, D.D.S.
"MSO"
OMEGA ORTHODONTICS OF VIRGINIA, INC.
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President and
Chief Executive Officer
SPOUSAL JOINDER AND CONSENT
I am the spouse of Richard H. Villa, D.D.S., the sole
Stockholder of Richard H. Villa, D.D.S., 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 and Successor Designation
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 Agreement.
Executed this day of
, 1997.
Signature:
Printed or Typed Name:___________________________
EXHIBIT A
ORTHODONTIC OFFICES
Name and Address
Richard H. Villa, D.M.D., P.C.
10120 West Broad Street Road, Suite L
Glen Allen, Virginia 23060
EXHIBIT B
STOCK
The shares of Richard H. Villa, D.M.D., P.C., as attached hereto.
EXHIBIT C
NON-COMPETITION AGREEMENT
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 American Arbitration Association ("AAA"), with the assistance
of the AAA, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The PC and the MSO shall each bear 50% of the fees and
costs of the mediator and any fees and costs of the 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 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.
(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 who are not parties 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 before a qualified sole
arbitrator in accordance with the then current Commercial
Arbitration Rules of the AAA. The arbitration shall be held in
Los Angeles, 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 the 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.
EXHIBIT 10.44
BOST1-636481-2
NON-NEGOTIABLE PROMISSORY NOTE
$65,000.00 Acton, California
December 31, 1997
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware
corporation ("Omega"), promises to pay to Richard H. Villa,
D.M.D. ("Dr. Villa") at 10120 West Broad Street, Suite L, Glen
Allen, Virginia 23060 or other location specified by Dr. Villa in
writing, Sixty Five Thousand Dollars ($65,000.00) 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 with the first month following the date
of this Note.
1. Payments. Payments of principal under this Note shall
be due and payable in 24 equal monthly installments, including
interest. All unpaid principal and accrued interest shall be due
and payable on the first day of the 24th month following the date
of this Note. Installment payments of interest and principal on
this Note shall be due and payable on the first day of each of
the 24 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
Villa, 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 without penalty or premium, upon
written notice to Dr. Villa.
5. Expenses. Omega agrees to pay all expenses, including
reasonable attorney's fees, which Dr. Villa may incur in
effecting collection of this Note upon default or at maturity.
6. Delays. Dr. Villa 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. Villa. 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. Villa 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.
Villa 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.
/s/ Diane Kessler By: /s/ Robert J.
Schulhof
Robert J. Schulhof,
President
EXHIBIT 10.45
9
OMEGA ORTHODONTICS, INC.
CONSULTING AGREEMENT
THIS AGREEMENT, dated as of January 1, 1998, between DR.
DEAN C. BELLAVIA, of Buffalo, New York (the "Consultant") and
OMEGA ORTHODONTICS, INC., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, pursuant to that certain Employment Agreement dated
as of May 1, 1997 by and between the Consultant and the Company
(the "Employment Agreement"), the Consultant has been an employee
of the Company;
WHEREAS, the Consultant and the Company desire to terminate
the Employment Agreement and the employment relationship
contemplated thereby;
WHEREAS, the Company desires to retain the Consultant for
the period and upon and subject to the terms herein provided, and
the Consultant is willing to agree to be retained by the Company
upon and subject to the terms herein provided;
NOW, THEREFORE, for the reasons set forth above, and in
consideration of the mutual promises and agreements hereinafter
set forth, the Company and the Consultant agree as follows:
1. Employment Termination and Consulting Retention.
1.1 Employment Termination. The Company and the Consultant
hereby terminate the Employment Agreement, effective as of the
close of business on December 31, 1997, and agree that the
employer/employee relationship contemplated thereby shall and
does similarly terminate.
1.2 Consulting Retention. Subject to the terms and
conditions set forth in this Agreement, the Company hereby
retains the Consultant to provide consulting services to the
Company as its Director of Affiliate Programs. The Consultant
hereby accepts such retention and agrees to provide such services
to the Company in such capacity for the period of this Agreement.
1.3 Consulting Services. The Consultant's services 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 services that the Consultant
and the Company agree upon. 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. The parties
acknowledge and agree that, notwithstanding the foregoing, the
Consultant 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.
2. Term of Agreement.
The term of this Agreement shall be for a period of three
(3) years commencing on January 1, 1998 (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 6 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 Section 6 of
this Agreement.
3. 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 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.
4. Compensation of Consultant.
4.1. Consulting Fee. During the term of this Agreement,
the Company shall pay to the Consultant as compensation for the
services to be performed by the Consultant a consulting fee of
$10,000 per month (the "Consulting Fee"). The Consulting Fee
shall be payable in semi-monthly installments.
4.2. Benefits. Unless otherwise permitted by resolution of
the Board of Directors, the Consultant shall not be entitled to
participate, during the term he is retained hereunder, in any
employee benefit or deferred compensation plans established by
the Company.
4.3. Office and Secretary. The Consultant 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 4.4 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.
4.4. 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. The parties
understand and agree that the Consultant may maintain a charge
card account in his name for his exclusive use for reimbursable
expenses and that the Company will reimburse the Consultant
utilizing the monthly charge account statement. in accordance
with the Company's expense reimbursement policy, as such may
change from time to time.
4.5. Stock Option. Pursuant to the Employment Agreement,
the Company granted the Consultant an incentive stock option (the
"Incentive Option") under the Company's Incentive Stock Plan (the
"Plan") to acquire 50,000 shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock"), at an exercise
price equal to $6.00 per share. The Plan and the agreement
effecting the Incentive Option (the "Option Agreement") provide
that the Incentive Option will expire three months after the
termination of the Consultant's employment under the Employment
Agreement. The Company and the Consultant, desiring to convert
the Incentive Option into a non-qualified option on substantially
the same terms as the Incentive Option, hereby agree to amend the
Option Agreement to provide for the grant of a non-qualified
option to acquire 50,000 shares of the Common Stock at an
exercise price of $6.00 per share with the same vesting and other
terms as provided in the Option Agreement, other than those terms
which relate specifically to the treatment of the Incentive
Option as an incentive stock option under the Plan.
5. 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.
6. Termination.
6.1 Termination by the Company. The Company may terminate
this Agreement immediately upon the occurrence of any of the
following: (a) the Consultant's death; (b) the Company
determines that the Consultant has furnished deceptive or
fraudulent information to the Company; or (c) 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.
6.2 Termination upon Breach. 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.
6.3 Termination upon Expiration. 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.
6.4 Rights upon Termination. 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.
7. Confidentiality.
The Consultant 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 Consultant's copyrighted material referred to in Section 8
hereof. The Consultant 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, Consultants, agents and representatives of the Company
who need to know such information, who shall be informed by the
Consultant of the confidential nature of such information and
directed by the Consultant to treat such information
confidentially. Upon the Company's request, the Consultant 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 Consultant can demonstrate: (a) was
known to the Consultant before joining the Company and was not
contributed to the Company by the Consultant; (b) is learned by
the Consultant from a third party entitled to disclose it; or (c)
becomes known publicly other than through the Consultant. 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 7 shall be
a material breach of this Agreement. The terms of this Section 7
shall remain in effect during the term of this Agreement and for
a period of two (2) years thereafter.
8. Use of Proprietary Information.
8.1 Company Proprietary Information. The Consultant
recognizes that the Company possesses a proprietary interest in
all of the information described in Section 7 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 Consultant, except as otherwise agreed between the Company
and the Consultant in writing. The Consultant expressly agrees
that any products, inventions, discoveries or improvements made
by the Consultant, his agents or affiliates, during the term of
this Agreement, based on or arising out of the information
described in Section 7 shall be the property of and inure to the
exclusive benefit of the Company. The Consultant further agrees
that any and all products, inventions, discoveries or
improvements developed by the Consultant 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.
8.2 Consultant 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 Consultant and The Bio-Engineering
Co., of Buffalo, NY (the "Consultant Proprietary Information"),
and that the Consultant and The Bio-Engineering Co. retain the
legal rights to the Consultant Proprietary Information and may
continue to use, publish and do whatever the Consultant and The
Bio-Engineering Co. deem appropriate with the Consultant
Proprietary Information. The Company acknowledges and agrees
that the Company may only use the Consultant Proprietary
Information for the betterment of its affiliated orthodontic
practices and may not publish, sell or in any way use the
Consultant Proprietary Information for any other purpose or
transfer to any other entity that the Company wishes to, without
the prior written consent of the Consultant and The Bio-
Engineering Co.
9. Non-Competition Agreement.
9.1. Non-Competition. The Consultant 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, consultant, partner,
consultant or otherwise, or otherwise engage or participate in,
except as a consultant of the Company, or any corporation
directly or indirectly controlled by it, any corporation or other
business entity engaged in providing consulting services to the
orthodontic industry, except his orthodontic consulting business
referred to in Section 1.3 hereof. Notwithstanding the
foregoing, the ownership by the Consultant 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 Consultant hereby acknowledges and agrees that the
provisions set forth in this Subsection 9.1 constitute a
reasonable restriction on his ability to compete with the
Company.
9.2. 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 Consultant shall not
contact or solicit, directly or indirectly, any customer, client,
affiliate orthodontist or orthodontic entity, tenant or account
whose identity the Consultant 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 Consultant, directly or
indirectly, entice or induce, or attempt to entice or induce, any
employee of the Company to leave such employ, nor shall the
Consultant 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
Consultant hereby acknowledges and agrees that the provisions set
forth in this Subsection 9.2 constitute a reasonable restriction
on his ability to compete with the Company.
9.3. 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.
9.4. Equitable Relief. The Consultant acknowledges that
the extent of damages to the Company from a breach of Sections 7,
8 and 9 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 Consultant specifically agrees that the Company is
entitled to injunctive or other equitable relief from a breach of
Sections 7, 8 and 9 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.
10. Assignment.
The Consultant may not assign any of his rights or
obligations hereunder without the prior written consent of the
Company.
11. Entire Agreement.
This Agreement contains the complete agreement concerning
the consulting 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 permitted 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 Consultant:
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.
INTENTIONALLY LEFT BLANK
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
CONSULTANT
/s/ Dean C. Bellavia
Dean C. Bellavia
EXHIBIT 10.46
BOST1-626289-3
DEMAND NOTE
LENDER: Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
BORROWER: Robert J. Schulhof
3621 Silver Spur Lane
Acton, California 93510
DATE: December 3, 1997
PRINCIPAL AMOUNT: $100,000.00
INTEREST RATE: Variable at a rate which is Two Percent
(2%) per annum above the Wall Street
Journal Prime Rate. Each change in such
interest rate shall take effect
simultaneously with the corresponding
change in such Prime Rate. "Prime Rate"
shall mean the rate of interest
announced by the Wall Street Journal
from time to time as its "Prime Rate."
ON DEMAND, but if not sooner demanded, then in thirty-
six (36) months from the date hereof, the undersigned
Borrower promises to pay to Omega Orthodontics, Inc., a
Delaware corporation (the "Lender"), at 3621 Silver Spur
Lane, Acton, California 93510 or other location specified by
Lender in writing, ONE HUNDRED THOUSAND and 00/100 DOLLARS
($100,000.00), with interest thereon at the Interest Rate
hereinabove specified, interest payable in arrears, upon
demand, but if not sooner demanded, then in thirty-six (36)
months from the date hereof. Interest hereunder shall be
computed on the basis of a 360-day year and a 30-day month.
1. Acceleration. 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: (i) failure
to honor, observe or perform any liability, obligation,
covenant or agreement hereunder or under any instrument,
document or undertaking given in connection herewith,
including without limitation, failure to make, when due any
payment required hereunder or in connection herewith; and
(ii) 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.
2. Voluntary Prepayment. Borrower may prepay this
Note in whole or in part at any time without penalty or
premium.
3. Expenses. Borrower agrees to pay all expenses,
including reasonable attorneys' fees, which Lender may incur
in effecting collection of this Note upon default or at
maturity.
4. 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.
5. Certain Waivers. Borrower 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; (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.
6. 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 now or hereafter existing at law or
in equity, by statutes or other provision of law, may be
exercised in any order or manner without waiving rights and
may be exercised cumulatively.
7. 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 Borrower at
3621 Silver Spur Lane, Acton, California 93510 or other
address of which Borrower shall have notified Lender in
writing.
8. 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 Robert J.
Schulhof, and shall take effect upon the date and year first
above written.
WITNESS: BORROWER:
/a/ Margaret Schulhof By: /s/ Robert
J. Schulhof
Margaret Schulhof Robert J.
Schulhof
EXHIBIT 10.47
BOST1-636697-2
MANAGEMENT SERVICES AGREEMENT
AMONG
Daniel Azani, D.D.S., Inc.
(the "PC")
AND
Azani Dental Services, Inc.
(the "MSO")
AND
Omega Orthodontics, Inc.
("OMEGA")
TABLE OF CONTENTS
ARTICLE 1 2
ARTICLE 2 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 4
2.7 Billing, Collection 4
2.8 Disbursement of Funds 4
2.9 MSO Expenses 5
2.10 Credit Reports 7
2.11 Accounting; Bookkeeping and Reports 7
2.12 Marketing 8
2.13 Complaints 8
2.14 Practice Laws 8
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 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
ARTICLE 4 11
ARTICLE 5 11
ARTICLE 6 14
ARTICLE 7 14
ARTICLE 8 15
8.1 PC's Covenants 15
(f) 16
8.2 MSO's Covenants 16
ARTICLE 9 17
9.1 Insurance to be Maintained by the 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 18
10.1 Termination by the PC 18
10.2 Termination by the MSO 18
ARTICLE 11 19
ARTICLE 12 19
ARTICLE 13 20
13.1 Access to Records 20
13.2 Patient Records 20
13.3 The PC's Control Over the Orthodontic
Practice 20
ARTICLE 14 20
14.1 Alternative Dispute Resolution 20
14.2 Waiver of Jury 21
ARTICLE 15 21
15.1 Notices 21
15.2 Confidentiality 22
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 23
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 24
15.12 Language Construction 24
15.13 Amendments 24
15.14 Severability 24
15.15 No Waiver 24
15.16 Captions 24
15.17 Counterparts 24
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 14th day of
January, 1998, by and among DANIEL AZANI, D.D.S., INC., a
professional corporation (the "PC") incorporated under the laws
of the State of California (the "State"), and AZANI DENTAL
SERVICES, INC., a Delaware corporation (the "MSO"), and OMEGA
ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, the PC owns and operates an orthodontic practice
(the "Practice") with offices located in the facilities
identified in Exhibit A (the "Orthodontic Office") and furnishes
orthodontic care to the general public through the services of
Daniel Azani, D.D.S. ("Dr. Azani") and any and all other
orthodontists who are or become affiliated with the PC as of or
following the date hereof and who are or become subsequently
named on Schedule 1 hereto (individually, an "Orthodontist" and
collectively, the "Orthodontists");
WHEREAS, the MSO was formed to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business
affairs of, the PC;
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, the MSO arranges for the provision of certain
orthodontic practice management services, including but not
limited to the OMEGA Patient Scheduling System (as defined
herein), through a subcontract with OMEGA until such time as the
MSO, OMEGA, and Omega Orthodontics of Woodland Hills, Inc., enter
into that certain Affiliation Agreement and Agreement and Plan of
Merger;
WHEREAS, the PC wishes to retain the MSO to perform the
functions and to provide the services described in this Agreement
which are designed to improve the efficiency and profitability of
the PC while enhancing the ability of Dr. Azani and the
Orthodontists (if any) to render quality orthodontic care to the
patients of the PC.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform
managerial and administrative services for the PC and provide
office space and orthodontic facilities appropriate for rendering
general orthodontic treatment at the Orthodontic Office upon the
following terms and conditions:
ARTICLE 1
TERM
1.1 The initial term of this Agreement shall commence on
the date first above written and continue for a period of twenty
(20) years (the "Initial Term"), subject, however, to earlier
termination in accordance with Article 10 hereof. This Agreement
shall continue for two separate and successive ten (10) 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 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 PC with
comprehensive practice management, financial and marketing
services, and such facilities, equipment, and support personnel
as are reasonably required by the PC to operate its Practice at
the Orthodontic Office, as determined by the MSO in consultation
with the PC. The PC hereby appoints the MSO as the sole and
exclusive business manager of the PC and agrees that the MSO
shall have all power and authority reasonably necessary to manage
the non-orthodontic business affairs of the PC and carry out the
MSO's 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 Office. The PC
acknowledges and agrees that the MSO may subcontract with other
persons or entities, including any entities related to the MSO by
ownership or control, to perform any part or all of the services
required of the MSO hereunder.
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 Office and
related fixtures, furniture, furnishings, equipment and related
services (collectively, the "Orthodontic Office Services")
described in Schedule 2 attached hereto and incorporated by
reference, as such Schedule may be amended by the PC and the MSO
from time to time. The MSO shall be responsible for all repairs,
maintenance and replacement of the Orthodontic Office including
such leasehold improvements, fixtures, furniture, furnishings and
equipment, except for repairs, maintenance and replacement
necessitated by the negligence of the 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 PC
on the equipment needs of and the efficiency and adequacy of the
Orthodontic Office. 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 PC, to enable
the 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 PC. The PC shall have sole authority to employ and
terminate the employment of all Practice Providers. All
personnel placed in the Orthodontic Office by the MSO shall be
subject to the approval of the PC, which approval shall not be
unreasonably withheld, and the 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 (excluding wages for Practice Providers and
clinical personnel, such as hygienists and laboratory personnel),
withholding, fringe benefits, bonuses and workers' compensation
insurance in connection with its employees; provided, however,
that the 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. Azani and the Orthodontists (if any)
and other individuals who are employees of the PC or otherwise
under contract with the PC to provide dental or orthodontic,
hygienic or other assistance or services to patients of the PC or
otherwise required by applicable "Laws" (as defined in Section
2.6 below) to be employees of the PC to provide services to
patients of the Practice. A list of all Practice Providers and
their relationship to the 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 PC shall use its
best efforts to consult with the MSO. The PC also shall use its
best efforts to consult with the MSO with regard to the terms of
contracts entered into between the 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 PC, the MSO shall establish standardized
business systems and procedures for the PC, including, but not
limited to, patient scheduling systems, treatment records
systems, financial reporting and process control systems and
patient communication management systems (the "OMEGA Patient
Scheduling System") that are designed to improve the PC's
operating efficiency. The MSO shall analyze such information on
an ongoing basis in order to advise the PC on ways of improving
operating efficiencies. The MSO shall provide training to the
staff of the PC in the implementation and operation of such
standardized business systems and procedures. The MSO shall
additionally provide the PC with and train the PC's staff in the
use of standardized clinical forms, including, without
limitation, forms for patient evaluations and treatment plans.
The 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 8.1 hereof and be subject to the restrictions on the
use, appropriation, and reproduction of such Confidential
Information provided for in Section 8.1.
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 PC. The MSO
shall order and purchase and maintain all inventory and
orthodontic supplies as reasonably required by the PC to enable
the 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 PC such business, legal and
regulatory management consultation and advice as may be
reasonably required or requested by the PC and directly related
to the operations of the PC or its compliance with Federal, state
or local laws, rules, regulations or interpretations governing or
applicable to the 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 PC or its compliance
with Laws, or for any legal or tax advice or services or personal
financial services to Dr. Azani and the Orthodontists (if any) or
any employee or agent of the 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 PC and the Practice
Providers, with all such billing and collecting to be done in the
name of the 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 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 PC's behalf. In
seeking payments on behalf of the PC hereunder, the MSO shall act
as the PC's agent in billing and collecting professional fees,
charges and other accounts owed to the PC and shall only bill
under the PC's provider number. In this regard, the 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 PC as a result of any
inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the PC by the MSO
pursuant to Section 2.7 above shall be deposited into an account
(the "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 PC (the "Bank"). The PC Account
shall contain the name of the PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so
disbursed from the PC Account.
(b) From the funds collected and deposited by the MSO
in the PC Account, the MSO shall make for and on behalf of the PC
the following disbursements promptly, when payable:
(1) Compensation, including salaries, benefits
and other direct costs payable to Dr. Azani and the Orthodontists
(if any) and the other Practice Providers of the 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 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 PC
the necessary funds to pay the current portion of such expenses
for the benefit of the PC, which advances will be deemed to be
loans to the PC to be repaid without interest from the 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 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 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 PC,
including, without limitation:
(1) Salaries, benefits and other direct costs of
all employees of the MSO providing services to the PC hereunder
(but excluding Dr. Azani and all the Orthodontists (if any) and
other Practice Providers);
(2) Salaries, benefits and other direct costs of
all employees of the PC (other than Dr. Azani and all the
Orthodontists (if any) and other Practice Providers) for services
provided on and after the commencement date of this Agreement,
excluding any and all costs of such employees of the PC which are
compensation for services rendered by such employees prior to the
commencement date of this Agreement. To the extent any such
excluded costs are paid by the MSO, the MSO shall be entitled to
offset such amounts against any amounts to be paid by the MSO to
Dr. Azani pursuant to Schedule 3 of this Agreement;
(3) Direct costs of all employees or consultants
of the MSO who provide services at the Orthodontic Office or in
connection with the PC required for improved clinic performance,
such as work management, materials management, purchasing, charge
and coding analysis, and business office consultation;
(4) Accounts payable of the PC (not including
payroll, "Accounts Payable") which have accrued prior to the
commencement date of this Agreement and which remain unpaid as of
the commencement date of this Agreement, but only to the extent
that such Accounts Payable do not exceed one-half (1/2) of one
"Average" month of Accounts Payable of the PC (the term "Average"
shall mean an average of the Accounts Payable of the PC using the
last 12 months prior to the end of the month immediately
preceding the commencement date of this Agreement);
(5) Direct costs associated with operating the
Orthodontic Office, including without limitation, utilities,
cleaning and maintenance;
(6) Obligations of the MSO under leases or
subleases entered into in connection with the operation of the
Orthodontic Office as well as utility expenses relating to the
Orthodontic Office;
(7) Personal property and intangible property
taxes assessed against the MSO's assets used in connection with
the operation of the Orthodontic Office, commencing on the date
of this Agreement;
(8) In the event an opportunity arises for
additional Orthodontists to become employed by the PC or other
orthodontic entities to merge with the 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;
(9) 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 PC, Dr. Azani 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. Azani 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 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 PC other
than as otherwise expressly provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the 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 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 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 PC.
Notwithstanding the foregoing, the cost of any "lump sum"
payments, including but not limited to bonuses, accrued but
unpaid sick leave and other similar payments, made to employees
of the PC (other than the individuals who are duly licensed to
practice dentistry and/or orthodontics in the State and other
individuals who are employees of the PC or otherwise under
contract with the PC to provide dental or orthodontic, hygienic
or other assistance or services to patients of the PC or
otherwise required by applicable Laws to be employees of the PC
to provide services to patients of the Practice) and to employees
of the MSO shall be shared equally by the PC and the MSO.
As used in this Section 2.9, "Approved Budget" means, for
each fiscal year, the aggregate maximum amount that the MSO will
reimburse the 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
PC and the MSO agree that the aggregate maximum annual amount
shall be $5,000.
2.10 Credit Reports. When requested by the PC, or its
authorized representative, the MSO shall obtain on behalf of the
PC information with regard to the ability of patients to pay for
the services to be rendered by the 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 PC, either in
cash or by insurance. Such determination shall be subject to the
reasonable approval by the PC, and as between the PC and the MSO,
the 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 PC's operations, provided that such
services are incurred in the ordinary course of business. In
addition, the MSO shall provide the 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 related to the PC, as well as the books and records of
the PC, all prepared by or with the assistance of an accountant
chosen by the MSO. At the end of each fiscal year of the PC, the
MSO shall arrange for a financial statement with respect to the
PC to be prepared by the MSO's accountant. At the 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 PC. The MSO shall assist and advise the PC in
the financial management of the PC.
2.12 Marketing. The MSO shall design and execute a
marketing plan to promote the PC's professional services. The
MSO shall also make available to the PC all brochures, contracts,
and other materials reasonably related to the carrying out of the
business purposes of the PC, including all stationery, printing
and postage costs in connection therewith. In connection with
such marketing plan, the MSO shall advise Dr. Azani 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 PC in handling
all complaints, grievances and disputes involving the PC and the
Practice Providers and any patients or third parties. However,
the MSO shall have no control over the PC's patients. All
decisions concerning the PC's patients shall be made by the 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 any Law 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 PC regarding the policies and
procedures for the operation of the PC.
2.16 Maintenance and Cleaning Services. The MSO shall
arrange for security, maintenance and cleaning of the Orthodontic
Office, 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 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 and with respect to the PC's employees (other than Dr.
Azani and all the Orthodontists (if any) and other Practice
Providers).
2.18 Insurance. The MSO shall provide and pay for customary
office property damage and liability insurance, including
business interruption insurance, not including professional
liability insurance (which shall be and remain the responsibility
of the PC).
2.19 Practice Transition and Associate Selection. Dr. Azani
and the Orthodontists (if any) shall keep the MSO informed of
retirement goals on an ongoing basis. Upon request of the 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 PC. The PC shall be responsible for
interviewing and selecting each Practice Associate. After the
Practice Associate(s) is (are) selected by the PC, the MSO will
assist the 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 PC or the new Practice Associate may
terminate the relationship. All such Practice Associates
recruited by the MSO as may be accepted by the PC shall be
employees of the PC (if so employed) and not of the MSO. The MSO
will confer with the PC on an appropriate salary/work-in
arrangement for the new Practice Associate and the final
arrangements shall be determined by the PC.
ARTICLE 3
DUTIES OF THE PC
3.1 General. The 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 PC shall be responsible for the employment and
professional supervision of Dr. Azani and all Orthodontists and
the other Practice Providers and all orthodontic care rendered to
patients shall be rendered by Dr. Azani and such Orthodontists.
Additionally, the PC shall be responsible for the professional
supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The PC shall use and occupy the
Orthodontic Office 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
Practice conducted at the Orthodontic Office shall be conducted
solely by Dr. Azani and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr. Azani
and the Orthodontists (if any), and no other orthodontist shall
be permitted to use or occupy the Orthodontic Office. The PC
shall provide professional services to patients hereunder in
compliance at all times with ethical standards and Laws applying
to the orthodontic profession. The PC shall ensure that Dr.
Azani 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
or threatened against Dr. Azani or any Orthodontist or other
Practice Provider, the PC shall immediately inform the MSO of
such action and the underlying facts and circumstances, subject
to such confidentiality agreement or arrangements as the PC and
the MSO shall mutually determine at or prior to the time of such
disclosure. The 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 PC at once to
remedy such deficiencies.
3.4 Records. The 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
PC, to obtain payments for services and related charges and to
facilitate the delivery of quality patient care by the PC.
Notwithstanding the foregoing, patient dental records shall be
and remain the property of the PC and the contents thereof shall
be solely the responsibility of the PC.
3.5 Professional Expenses. The 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 PC. The MSO shall
reimburse the PC for such expenses in accordance with the
Approved Budget. The PC shall ensure that Dr. Azani and all the
Orthodontists employed by the PC participate in such continuing
education as is necessary for Dr. Azani and such the
Orthodontists to remain current.
3.6 Professional Liability Insurance. The 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 PC shall also cooperate in any programs recommended by the
MSO to assure that each of its Orthodontists is insurable, and
that Dr. Azani 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 PC
operates an active orthodontic practice to which it, Dr. Azani
and each Orthodontist associated with the PC devote their full
time and attention, unless other specific provisions are made in
writing and mutually agreed upon by the MSO and PC. The PC will
cause Dr. Azani and each individual Orthodontist who now is or
hereafter becomes affiliated with the PC to enter into a written
employment agreement (the "Employment Agreement") satisfactory in
form and substance to the MSO, pursuant to which Dr. Azani or the
Orthodontist shall agree not to establish, operate or provide
orthodontic or dental services, without the prior written consent
of both the 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
Dr. Azani or such Orthodontist will not, directly or indirectly,
either for Dr. Azani or such Orthodontist's own benefit or for
the benefit of any other person, firm, company, corporation or
other entity, call on, solicit, divert or take away, or attempt
to call on, solicit, divert or take away, any of the PC's
patients, business or employees, including but not limited to,
those to whom Dr. Azani or such Orthodontist catered or provided
services or those with whom Dr. Azani or such Orthodontist became
acquainted while engaged as an employee of the PC. Such
Employment Agreement (or separate agreement) shall also provide,
among other things, that in the event of a breach of Dr. Azani's
or the Orthodontist's agreement not to compete with the 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. Azani's or
such Orthodontist's income, as shown on the W-2 form prepared by
the PC, for the most recent calendar year; or (b) $300,000. Such
payment shall be made to the MSO by the PC immediately following
receipt of the payment from Dr. Azani or the breaching
Orthodontist by the PC. Each of the MSO and OMEGA shall be
expressly named as a third-party beneficiary to such agreements
between the PC and Dr. Azani 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.
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 by the PC shall be
separate and independent from the provision of administrative,
management and support services by the MSO. Thus, the PC shall
have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the
Orthodontic Office.
4.2 No employee or other representative of the MSO shall be
engaged in, or allowed to solicit patients on behalf of, the PC,
nor shall the MSO have any control over the 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 PC shall be used or distributed without
having first been approved by the 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 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 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 PC during the Term of this
Agreement the Orthodontic Office, and the leasehold improvements
and fixtures, furniture and equipment at the Orthodontic Office
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 a lease
for the premises occupied by the PC (collectively, the "Master
Lease") a copy of which is attached hereto as Exhibit A and
incorporated herein by this reference. The PC hereby
acknowledges that the premises described under the Master Lease
are suitable for the PC's orthodontic practice. Based and
contingent upon the PC's promise to timely pay all amounts due
under this Agreement, the MSO hereby agrees to sublease the
leased premises to the PC upon the following terms and
conditions:
(i) This sublease between the MSO and the 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 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 PC,
respectively) and, along with the provisions of this Section
5.1(a) 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 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, or
the sections containing provisions relating to the subjects
described in such titles, as the case may be, all of which
obligations shall be considered MSO Expenses hereunder and the PC
shall have no monetary obligation in that regard. In addition,
as between the MSO and the 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 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 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 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 PC's tenancy or the MSO's
rights and remedies as Sub-Lessor.
5.2 The MSO shall provide the PC at the Orthodontic Office
such additional leasehold improvements, fixtures, furniture,
furnishings and equipment as may be mutually agreed to with the
PC and reflected from time to time on a supplement to Schedule 2
attached hereto and incorporated by reference. The use by the 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 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,
except for repairs, maintenance and replacement necessitated by
the negligence of the PC, its employees and agents (not including
the MSO or its employees or agents); provided, however, that the
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 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 in writing and
signed by the 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 Office,
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 Office is located. The MSO has also assumed
substantial obligations associated with the continuing operation
of the Orthodontic Office, including those of lessee, obligor and
guarantor and obligor on loans to establish and operate the
Orthodontic Office. 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 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 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 PC
specifically agrees that the MSO may defer actual receipt of its
Management Fees and/or advance monies for purposes of managing
the 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 PC pursuant to this Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed
by the PC under this Agreement, the 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
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 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 PC expressly agrees
to execute and deliver any appropriate UCC-1 Financing Statement
and UCC-1 Fixture filings, if so requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 PC's Covenants. As further consideration for the MSO's
performance of the terms and conditions of this Agreement, the PC
covenants, represents and warrants as follows (which covenants,
representations and warranties shall survive the execution of
this Agreement):
(a) The PC shall comply with all Laws and ethical and
professional standards applicable to the practice of orthodontics
and cause all of its employees to do the same.
(b) The PC shall provide quality services and shall
cause Dr. Azani and the Orthodontists (if any) to serve the
orthodontic needs of the patients of the PC. The PC covenants to
monitor rigorously utilization and quality of services provided
at the Orthodontic Office 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 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 Office, 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 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,
computer software, related materials and other information, as
amended from time to time (collectively, the "MSO Information"),
regarding such systems. The PC acknowledges and agrees that all
information, whether imparted orally or in writing, relating to
the OMEGA Patient Scheduling System and the MSO Information
(collectively the "Confidential Information") constitutes trade
secrets of OMEGA and/or the MSO. The PC hereby waives any and
all right, title and interest in and to such Confidential
Information. Upon expiration or termination of this Agreement by
either party for any reason whatsoever, the PC, at its expense,
shall immediately return and shall cause its shareholders,
directors, officers, affiliates, partners, employees and
independent contractors to immediately return to OMEGA or the
MSO, as applicable, all Confidential Information, and the PC will
not, and will cause its shareholders, directors, officers,
affiliates, partners, employees and independent contractors not
to, thereafter use, appropriate, disclose, or reproduce such
Confidential Information.
(e) The 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 PC
further agrees and acknowledges that the Confidential Information
is disclosed in confidence and with the understanding that it
constitutes valuable business information developed by the MSO
with the assistance of OMEGA, or OMEGA, as the case may be, at
great expenditures of time, effort and money. The PC agrees to
hold in trust and keep strictly confidential the Confidential
Information and not to disclose it or allow it to be disclosed
directly or indirectly to any person or entity other than persons
who are engaged by the PC to perform duties in connection with
the PC and who have a need to know such Confidential Information
in the performance of their duties for the PC, without OMEGA's or
the MSO's prior written consent, as the case may be. The 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 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 Information or trade secrets obtained by
the PC. The 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. The 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.
(f) The PC further expressly acknowledges and agrees
that any use, appropriation, disclosure or reproduction of any
Confidential Information in breach or violation of any of the
representations or covenants of this Section 8.1 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, disclosure 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 relief, including specific performance, or
other equitable relief without the necessity of proving actual
damages or posting any bond or other security, 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.
8.2 MSO's Covenants. As further consideration for the 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 Office,
without the express written consent of the PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the PC. Throughout the
Term of this Agreement, the 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 for Dr. Azani and each of the Orthodontists providing
services for the PC and a separate limit for the PC. The 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 PC with respect to such insurance. Deductibles
with respect to such policies shall not be MSO Expenses. The MSO
shall reimburse the PC for premiums in accordance with the
Approved Budget. The PC also agrees to name the MSO and OMEGA
as co-insureds. The 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 an 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 PC will cause Dr. Azani
and each Orthodontist (if any) providing services to enter into
an agreement with the PC that upon termination of Dr. Azani's or
such Orthodontist's relationship with the PC, for any reason,
tail insurance coverage will be purchased by Dr. Azani or such
Orthodontist. Such provisions may be contained in an employment
agreement, restrictive covenant agreement or other agreement
entered into by the PC and Dr. Azani or the Orthodontist, and the
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 PC or Dr. Azani or each such
Orthodontist.
9.4 Additional Insureds. The 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 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 (including reasonable attorneys' fees),
judgments, settlements, lawsuits and obligations, 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 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
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),
judgments, settlements, lawsuits and obligations, 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
any intentional acts, negligent acts or omissions by the MSO
and/or its shareholders, agents, employees and/or subcontractors
(other than the PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the PC. The PC 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
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 PC may give written notice of the
immediate termination of this Agreement.
(b) 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 PC, the PC may terminate this Agreement.
10.2 Termination by the MSO. The 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 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 PC or any
shareholders thereof, except for the filing of a petition in
involuntary bankruptcy against the 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 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 PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the 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 PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Dr. Azani or any Orthodontist
breaches or defaults under his or her Employment Agreement and
the PC does not cause Dr. Azani 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 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 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 PC; provided,
however, that all contracts or fees set for services on behalf of
the PC will be subject to final approval and acceptance by the
PC. Additionally, the 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 PC Account. The PC hereby irrevocably
appoints the MSO as the PC's attorney-in-fact, with full power
and authority in the place and stead of the PC, in the MSO's
discretion, to endorse in the name of the 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 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 PC under or by virtue
of this Agreement. Notwithstanding the foregoing powers of
attorney, the 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 PC's failure to sign and deliver said
financing statements, security agreements or other agreements,
the MSO is authorized as the agent of the PC to sign any such
instruments. The PC may review all deposits and expenses upon
request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the PC nor its employees or Practice Providers shall
have any claim under this Agreement or otherwise against the MSO
for workers' 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 PC. Since neither the PC nor its employees
are employees of the MSO, the MSO shall not be obligated to make
any withholding tax payments on behalf of the PC for 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 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 PC shall retain all patient dental records maintained by the
PC or the MSO in the name of the PC. During the term of this
Agreement, and thereafter, the PC or its designee shall have
reasonable access during normal business hours to the 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 PC
may copy any or all such records.
13.3 The PC's Control Over the Orthodontic Practice.
Notwithstanding the authority granted to the MSO herein, the MSO
and the PC agree that the PC, personally or through Dr. Azani or
any of its Orthodontists (if any) and other Practice Providers,
shall have complete control and supervision over the professional
aspects of the 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 PC. The PC shall have sole authority to direct the
business, professional, and ethical aspects of the 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 PC's professional
judgment. The MSO may, however, advise the PC as to the
relationship between its performance of orthodontic functions and
the overall administrative and business functioning of the 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 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 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 PC shall be given as follows:
Daniel Azani, D.D.S., Inc.
18411 Clark Street, Suite 200
Tarzana, CA 91356
Attn: Daniel Azani, D.D.S.
or such other address as may be furnished by the PC to the MSO
and OMEGA from time to time in writing.
Notices to the MSO shall be given as follows:
Azani Dental Services, Inc.
18411 Clark Street, Suite 200
Tarzana, CA 91356
Attn: Daniel Azani, D.D.S.
or other such addresses as may be furnished by the MSO to the PC
and OMEGA from time to time in writing.
Notices to OMEGA 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 OMEGA to the MSO
and the 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
PC and the MSO shall amend this Agreement as necessary to comply
with such Laws. To the maximum extent possible, any such
amendment shall preserve the underlying economic and financial
arrangements between the 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 PC under this Agreement
shall in any way or in any manner be deemed to create any
obligation of the MSO or of the 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, the Stock Put/Call Option and
Successor Designation Agreement including the schedules and
exhibits thereto and the Affiliation Agreement and Agreement and
Plan of Merger including the schedules and exhibits thereto, 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 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.
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 any party to this
Agreement of any one or more defaults, if any, on the part of any
other party, shall not be construed to operate as a waiver of any
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.
PC:
DANIEL AZANI, D.D.S., INC.
By: /s/ Daniel Azani, D.D.S.
Daniel Azani, D.D.S.,
President
MSO:
AZANI DENTAL SERVICES, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof,
President
OMEGA:
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof,
President
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Daniel Azani, D.D.S.
18411 Clark Street, Suite 200
Tarzana, CA 91356
William W. Beazley, D.D.S.
5400 Balboa Blvd., Suite 321
Encino, CA 91316
SCHEDULE 2
ORTHODONTIC OFFICE AND
ORTHODONTIC OFFICE SERVICES
Offices
18411 Clark Street, Suite 200
Tarzana, CA 91356
5400 Balboa Blvd., Suite 321
Encino, CA 91316
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
Azani Dental Services, Inc., a Delaware corporation (the
"MSO") and Daniel Azani, D.D.S., Inc., a California professional
corporation (the "PC") have agreed that upon receipt of the
Practice Revenues each month, the compensation shall be paid to
the MSO and the PC as follows (all capitalized terms used herein
and not otherwise defined herein shall have the respective
meanings given to such terms in the Management Services
Agreement, made effective as of January 14, 1998, by and among
Omega Orthodontics, Inc., a Delaware corporation, the PC and the
MSO (the "Agreement"):
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 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 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 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 PC Account and allocate the proceeds between the MSO and the
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 PC (whether through subsidiaries or affiliates from its
operations and business at the Orthodontic Offices), including,
but not limited to, all fees and charges collected as a result of
professional orthodontic services furnished to patients by the PC
at the Orthodontic Offices and for any other goods or services
sold or provided to such patients.
EXHIBIT A
ORTHODONTIC OFFICE - MASTER LEASE
[Dr. Azani Attach]
EXHIBIT B
PRACTICE PROVIDERS
Daniel Azani, D.D.S.
William W. Beazley, D.D.S.
EXHIBIT C
PC'S AFFIDAVIT
AFFIDAVIT
I, Daniel Azani, 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 Daniel Azani, D.D.S., Inc. (the "PC").
I have had substantial experience in the practice of
Orthodontics and in managing and operating an orthodontic office
located at 18411 Clark Street, Suite 200, Tarzana, California
91356 (the "Orthodontic Office").
In the course of operating the Orthodontic Office, I have
acquired significant knowledge as to the overhead costs incurred
and gross receipts generated by similar types of orthodontic
office. 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 January 14, 1998,
among the PC, Omega Orthodontics, Inc., a Delaware corporation
and Azani Dental Services, Inc., a Delaware corporation (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 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 PC Twenty
Five Percent (25%) of "Practice Revenues" retained by the 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 Los Angeles, California this 14th day of
January, 1998.
___________________________
Daniel Azani, D.D.S.
SUBSCRIBED AND SWORN TO
before me this 14th day
of January, 1998.
Daniel Azani, D.D.S.
(This area for Official Seal)
(Notary Public)
EXHIBIT D
SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 14th day of
January 1998, by Daniel Azani, D.D.S., Inc., a California
professional corporation (the "PC"), and Daniel Azani, D.D.S.
("Dr. Azani") who is duly licensed to practice orthodontics in
the State of California (the "State") and Azani Dental Services,
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, among the PC, Omega
Orthodontics, Inc., a Delaware corporation, 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 PC pursuant to
the Agreement and for the faithful and timely performance of all
the covenants and conditions to be performed by the PC under the
Agreement (collectively, the "Obligations") the 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 PC, together with all proceeds thereof
(collectively, the "Collateral");
WHEREAS, the 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 or performance as the case may be by the PC
of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the
PC hereby pledges, grants, bargains, assigns and transfers to the
MSO, a security interest in, the Collateral. Dr. Azani shall
cause the PC to perform fully and on a timely basis all of the
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 PC represents and
warrants all of the accounts receivable constituting a portion of
the Collateral of the 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 PC. Further, the 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 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 obligations of a
secured party under the Uniform Commercial Code as adopted in 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 PC hereby irrevocably authorizes the MSO to
sign and file financing statements naming the PC as the debtor
and the MSO as the secured party, at any time with respect to any
Collateral, without the signature of the PC. The PC hereby
irrevocably appoints the MSO as the PC's authorized agent and
lawful attorney-in-fact, with full authority in the place and
stead of the PC and in the name of the 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 PC under or by virtue
of the Collateral. Notwithstanding the foregoing power of
attorney, the PC shall at any time upon the request of the MSO,
sign and deliver financing statements, security agreements or
other agreements with respect to any Collateral. Upon the PC's
failure to sign and deliver said financing statements, security
agreements or other agreements, the MSO is authorized as the
agent of the PC to sign any such instruments. Upon the request
of the MSO, the 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 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 PC. The MSO agrees, however, that the 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;
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 PC under the Agreement; and
D. To the payment to the 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:
Azani Dental Services, Inc.
18411 Clark Street, Suite 200
Tarzana, CA 91356
Attn: Daniel Azani, D.D.S.
or other such addresses as may be delivered by the MSO to the PC
from time to time in writing.
Notices to Dr. Azani or the PC shall be given at:
Daniel Azani, D.D.S., Inc.
18411 Clark Street, Suite 200
Tarzana, CA 91356
Attn: Daniel Azani, D.D.S.
or other such addresses as may be delivered by the 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.
10. Additional Documents. The 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.
PC: MSO:
DANIEL AZANI, D.D.S., INC. AZANI DENTAL
SERVICES, INC.
By:____________________________
By:__________________________
Daniel Azani, D.D.S., President
Robert J. Schulhof, President
Dr. Azani:
_______________________________
Daniel Azani, D.D.S.
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 American Arbitration Association ("AAA"), with the assistance
of AAA, unless the parties agree otherwise in finding a mutually
acceptable mediator.
5. The PC and the MSO shall each bear 50% of the fees and
costs of the mediator and any fees and costs of the 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 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.
(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.
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 Rules of
Commercial Arbitration the AAA. The arbitration shall be held in
Los Angeles, 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 the 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.
Exhibit 10.47a
BOST1-637128-2
AMENDMENT TO
MANAGEMENT SERVICES AGREEMENT
THIS AMENDMENT (the "Amendment Agreement") to a MANAGEMENT
SERVICES AGREEMENT, dated January 14, 1998 (the "Management
Agreement") is entered into as of the 19th day of January, 1998,
and is made effective as of the 1st day of April, 1998, by and
among DANIEL AZANI, D.D.S., INC., a professional corporation (the
"PC") incorporated under the laws of the State of California (the
"State"), and AZANI DENTAL SERVICES, INC., a Delaware corporation
(the "MSO"), and OMEGA ORTHODONTICS, INC., a Delaware corporation
("OMEGA").
RECITALS
WHEREAS, the parties hereto have entered into a form of
Management Agreement, dated January 14, 1998; and
WHEREAS, the parties hereto wish to make certain amendments
to the Management Agreement in order to allow the MSO to provide
management services to Orthodontic Entity with respect to the
practice that it conducts at its location at 33342 Santiago Road,
Acton, California 93510; and
WHEREAS, a written amendment to the Management Agreemeent is
necessary to effect such amendments.
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 to amend the Management
Agreement as follows:
1. Schedule 2. Schedule 2 to the Management Agreement
shall be amended and restated to provide as follows:
"SCHEDULE 2
ORTHODONTIC OFFICES AND
ORTHODONTIC OFFICE SERVICES
Offices
18411 Clark Street, Suite 200
Tarzana, CA 91356
5400 Balboa Blvd., Suite 321
Encino, CA 91316
33342 Santiago Road
Acton, CA 93510"
2. Notices. Section 15.1 of the Management Agreement
shall be amended and restated to provide as follows:
"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 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 PC shall be given as follows:
Daniel Azani, D.D.S., Inc.
5400 Balboa Blvd., Suite 321
Encino, California 91316-1502
Attn: Daniel Azani, D.D.S.
or such other address as may be furnished by the PC to the MSO
and OMEGA from time to time in writing.
Notices to the MSO shall be given as follows:
Azani Dental Services, Inc.
3621 Silver Spur Lane
Acton, California 93510
or other such addresses as may be furnished by the MSO to the PC
and OMEGA from time to time in writing.
Notices to OMEGA 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 OMEGA to the MSO
and the PC from time to time in writing."
3. Ratification of Other Provisions of Management
Agreement. Except as provided herein, all other provisions,
terms and conditions of the Management Agreement are hereby
ratified and confirmed.
IN WITNESS WHEREOF the parties hereto have caused this
Amendment Agreement to be executed as of the date set forth above
by their duly authorized representatives.
PC:
DANIEL AZANI, D.D.S., INC.
By: /s/ Daniel Azani, D.D.S.
Daniel Azani, D.D.S.,
President
MSO:
AZANI DENTAL SERVICES, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof,
President
OMEGA:
OMEGA ORTHODONTICS, INC.
By: /s/ Robert J. Schulhof
Robert J. Schulhof,
President
EXHIBIT 10.48
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 14th day
of January, 1998 by and among Daniel Azani, D.D.S., Inc., a
professional corporation (the "PC") incorporated under the laws
of the State of California (the "State"); Daniel Azani, D.D.S.
("Dr. Azani") who is duly licensed to practice orthodontics in
the State; Azani Dental Services, Inc., a Delaware corporation
(the "MSO"); and Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"), with reference to the following facts.
RECITALS
A. The PC owns and operates an orthodontic practice with
offices located in the facility identified in Exhibit A (the
"Orthodontic Office") and furnishes orthodontic care to the
general public through the services of Dr. Azani affiliated with
the PC.
B. The PC, OMEGA 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 PC.
C. 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 services organizations such as the
MSO.
D. Dr. Azani owns all of the capital stock (the "Capital
Stock") of the 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. Azani's
right, title, interest and estate in and to all of the issued and
outstanding stock in the 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.
E. Dr. Azani has agreed to grant to the MSO, and the MSO
desires to acquire from Dr. Azani 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.
F. This Agreement is entered into in anticipation of the
execution of that certain Affiliation Agreement and Agreement and
Plan of Merger by and among the MSO, OMEGA, Dr. Azani, the PC and
Omega Orthodontics of Woodland Hills, Inc. (the "Affiliation
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 PC, Dr. Azani, 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 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 Office,
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 of 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 Office, 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. Azani 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 Office.
If the MSO desires to exercise its Put Option, the MSO shall give
written notice of such election to the PC and Dr. Azani 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 PC shall have the option (the "Call
Option") to require the MSO, upon termination of the Management
Services Agreement by the PC under Section 10.1 thereof, to:
(a) Sell to the PC all of the leasehold improvements,
fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Office, 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 Office, 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 PC,
the restrictive covenants provided for in Section 3.7 of the
Management Services Agreement and in the applicable Employment
Agreement with Dr. Azani 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 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 Office.
If the PC desires to exercise its Call Option, the PC shall give
written notice of such election (the "Call Option Notice") 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 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. Azani under Section
1.1(b)(i) of the Affiliation Agreement, plus (y) the value of
that number of shares of Omega Common Stock issued to Dr. Azani
under Section 1.1(b)(ii) of the Affiliation Agreement, such value
to be determined by multiplying such number of shares by the
average daily closing sales price per share of Omega's Common
Stock on the Nasdaq Small Cap Market for each business day
(Monday through Friday, not including legal holidays) of the
calendar week ending on the Friday 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 PC of the Call Option under Section 3, as the
case may be, shall be at the offices of Miller & Holguin, 1801
Century Park East, Suite 700, Los Angeles, California 90067, 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 at such other location and on such other date as the
parties may mutually determine. At the Closing, the PC, at its
election, shall pay cash, or a combination of cash and return of
the shares of Omega Common Stock received by Dr. Azani under
Section 1.1(b)(ii) of the Affiliation Agreement, such shares to
be valued as provided for in Section 3 hereof, pursuant to
exercise by the MSO of the Put Option or the PC of the Call
Option, as the case may be. The PC and Dr. Azani 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
PC's 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 Designated
Successor to purchase all or any portion of the Capital Stock
then held by Dr. Azani:
(i) the death of Dr. Azani;
(ii) if Dr. Azani is determined to be permanently
disabled so as to be unable to render any professional services
on behalf of the PC, as determined in accordance with paragraph
(b) of this Section 5 below;
(iii) if Dr. Azani 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 PC;
(iv) if Dr. Azani acts in a criminal or grossly
negligent manner with respect to the performance of professional
orthodontic services rendered or to be rendered on behalf of the
PC;
(v) if Dr. Azani becomes hospitalized for alcohol
or drug abuse;
(vi) if Dr. Azani is convicted of a felony;
(vii) if Dr. Azani loses his license or is
otherwise determined to be disqualified from rendering services
as an orthodontist for the PC by the applicable dental or other
comparable regulatory board of the State;
(viii) if Dr. Azani'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. Azani 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. Azani 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. Azani and such involuntary
petition, assignment, attachment or interest is not discharged
within sixty (60) days after creation;
(xi) if Dr. Azani 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. Azani retires within the meaning
of Paragraph (c) of this Section 5; or
(xiii) if Dr. Azani 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 thirty (30) days, (i)
prevents Dr. Azani from performing his duties competently and
adequately as determined by the MSO, or (ii) substantially
impairs the PC's or Dr. Azani's ability to practice orthodontics.
(c) For purposes hereof, Dr. Azani shall "Retire" on
the date when Dr. Azani voluntarily withdraws from the practice
of orthodontics at whatever age or for whatever reason and
notifies the 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. Azani (or his
successor or representative), specifying the name and address and
including information showing the qualifications and suitability
of the Designated Successor to conduct or perform professional
services on behalf of the PC and number of shares of Capital
Stock of Dr. Azani 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) through (xiii), inclusive, as to all of the shares of
Capital Stock of Dr. Azani, Dr. Azani 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. Azani
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
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. Azani 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. Azani 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 PC on such terms and conditions as may be
approved by the MSO, and (ii) upon Dr. Azani 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 any such 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 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. Azani (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. Azani. The
note shall be for a term of five (5) 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 (5) equal annual
installments commencing six months after the closing date.
(c) Purchase From Dr. Azani's Estate.
(i) Upon the death of Dr. Azani and receipt of a
Successor Designation Exercise Notice, Dr. Azani's personal
representative shall apply for and obtain any necessary court
approval or confirmation of the sale of Dr. Azani's shares of
Capital Stock pursuant to this Agreement. The representative of
the estate of Dr. Azani 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. Azani's spouse, if any,
shall not be considered the death of Dr. Azani for purposes of
this Agreement.
(iii) The estate of Dr. Azani shall bear, and
hold the 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. Azani to transfer to the Designated Successor full
legal and equitable tax-free title to the Capital Stock of Dr.
Azani.
(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. Azani
hereby consents to the acquisition and maintenance in force of a
disability insurance policy and a life insurance policy on Dr.
Azani ("Insurance Policies"). The life insurance policy may be
in an aggregate face amount of up to three times Dr. Azani's
income, as shown on the W-2 Form prepared by the PC for the most
recent calendar year. Dr. Azani 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 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 PC and Dr. Azani 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 B 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. Azani 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. Azani shall not permit the PC to, and the PC shall not,
during the term of this Agreement, issue any stock, other equity,
or debt of the PC; permit any change in the composition or
respective percentage ownership of the 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. Azani 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. Azani. Upon
execution of this Agreement, Dr. Azani 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.
Azani. 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 January 14, 1998, among the PC, the
holder hereof and the MSO and OMEGA (as defined
therein). The PC will mail without charge to any
holder of these shares a copy of such agreement within
five (5) days of receipt by the 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 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. Azani.
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 PC, Dr. Azani, 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
Agreement or negotiations 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: (i)
upon the expiration of six (6) months after the termination of
the Management Services Agreement; or (ii) upon 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 PC and Dr. Azani 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 PC and Dr. Azani 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 PC
or Dr. Azani 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
hereto, 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 PC or Dr. Azani:
Daniel Azani, D.D.S.
Daniel Azani, D.D.S., Inc.
11841 Clark Street, Suite 200
Tarzana, CA 91356
If to the MSO:
Azani Dental Services, Inc.
11841 Clark Street, Suite 200
Tarzana, CA 91356
If to 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 as 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 PC, Dr. Azani 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.
18. Alternative Dispute Resolution.
(a) General.
(i) 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 (a)(ii)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.
(ii) 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.
(b) 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 PC, Dr. Azani, MSO and OMEGA have
executed this Agreement as of the date first above written by
their duly authorized representatives as set forth below.
"PC"
DANIEL AZANI, D.D.S., INC.
a California professional corporation
By: ______________________________
Daniel Azani, D.D.S., President
"Dr. Azani"
__________________________________
Daniel Azani, D.D.S.
"MSO"
AZANI DENTAL SERVICES, 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
SPOUSAL JOINDER AND CONSENT
I am the spouse of Daniel Azani, D.D.S. ("Dr. Azani"), the
sole Stockholder of Daniel Azani, D.D.S., Inc. (the "PC"). 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, made effective as of January 14,
1998, by and among Azani Dental Services, Inc., a Delaware
corporation (the "MSO"), OMEGA Orthodontics, Inc., a Delaware
corporation ("OMEGA"), Dr. Azani and the PC), 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 the Stock Put/Call Option and Successor
Designation 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 the Stock Put/Call
Option and Successor Designation Agreement.
Executed this 14th day of January, 1998.
Signature:
Printed or Typed Name:___________________________
EXHIBIT A
ORTHODONTIC OFFICES
[Dr. Azani Attach]
EXHIBIT B
STOCK
[Dr. Azani attach]
EXHIBIT C
NON-COMPETITION AGREEMENT
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 American Arbitration Association ("AAA"), with the assistance
of the AAA, unless the parties agree otherwise in finding a
mutually acceptable mediator.
5. The PC and the MSO shall each bear 50% of the fees and
costs of the mediator and any fees and costs of the 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 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.
(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 who are not parties 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 before a qualified sole
arbitrator in accordance with the then current Commercial
Arbitration Rules of the AAA. The arbitration shall be held in
Los Angeles, 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 the 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.
Exhibit 10.48a
BOST1-637130-2
AMENDMENT TO
STOCK PUT/CALL AND SUCCESSOR DESIGNATION AGREEMENT
THIS AMENDMENT (the "Amendment Agreement") to a STOCK
PUT/CALL AND SUCCESSOR DESIGNATION AGREEMENT, dated January 14,
1998 (the "Put/Cal Agreement") is entered into as of the 19th day
of January, 1998, and is made effective as of the 1st day of
April, 1998, by and among Daniel Azani, D.D.S., Inc., a
professional corporation (the "PC") incorporated under the laws
of the State of California (the "State"); Daniel Azani, D.D.S.
("Dr. Azani") who is duly licensed to practice orthodontics in
the State; Azani Dental Services, Inc., a Delaware corporation
(the "MSO"); and Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"), with reference to the following facts.
RECITALS
WHEREAS, the parties hereto have entered into a form of
Put/Call Agreement, dated January 14, 1998; and
WHEREAS, the parties hereto wish to make certain amendments
to the Put/Call Agreement in order to allow the MSO to provide
management services to Orthodontic Entity with respect to the
practice that it conducts at its location at 33342 Santiago Road,
Acton, California 93510; and
WHEREAS, a written amendment to the Put/Call Agreemeent is
necessary to effect such amendments.
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 to amend the Put/Call Agreement
as follows:
1. Schedule 2. Schedule 2 to the Put/Call Agreement shall
be amended and restated to provide as follows:
"SCHEDULE 2
ORTHODONTIC OFFICES AND
ORTHODONTIC OFFICE SERVICES
Offices
18411 Clark Street, Suite 200
Tarzana, CA 91356
5400 Balboa Blvd., Suite 321
Encino, CA 91316
33342 Santiago Road
Acton, CA 93510"
2. Call Option. Section 3 of the Put/Call Agreement shall
be amended and restated to provide as follows:
"3. Call Option. The PC shall have the option (the "Call
Option") to require the MSO, upon termination of the Management
Services Agreement by the PC under Section 10.1 thereof, to:
(a) Sell to the PC all of the leasehold improvements,
fixtures, furniture, furnishings and equipment comprising or
located at the Orthodontic Office, 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 Office, 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 PC,
the restrictive covenants provided for in Section 3.7 of the
Management Services Agreement and in the applicable Employment
Agreement with Dr. Azani 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 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 Office.
If the PC desires to exercise its Call Option, the PC shall give
written notice of such election (the "Call Option Notice") 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 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. Azani under Section
1.1(b)(i) of the Affiliation Agreement,
plus (y) the original principal amount of the Purchase Note
issued to Dr. Azani under Section 1.1(b)(ii) of the Affiliation
Agreement, plus (z) the value of that number of shares of Omega
Common Stock issued to Dr. Azani under Section 1.1(b)(iii) of the
Affiliation Agreement, such value to be determined by multiplying
such number of shares by the average daily closing sales price
per share of Omega's Common Stock on the Nasdaq Small Cap Market
for each business day (Monday through Friday, not including legal
holidays) of the calendar week ending on the Friday immediately
preceding the date the Call Option Notice is delivered to the MSO
(collectively, the "Call Price")."
3. Closing. Section 4 of the Put/Call Agreement shall be
amended and restated to provide as follows:
"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 PC of the Call Option under Section 3, as the
case may be, shall be at the offices of Omega Orthodontics, Inc.,
3621 Silver Spur Lane, Acton, California 92510, 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
at such other location and on such other date as the parties may
mutually determine. At the Closing, the PC, at its election,
shall pay cash, or a combination of cash and return of the shares
of Omega Common Stock received by Dr. Azani under Section
1.1(b)(ii) of the Affiliation Agreement, such shares to be valued
as provided for in Section 3 hereof, pursuant to exercise by the
MSO of the Put Option or the PC of the Call Option, as the case
may be. The PC and Dr. Azani 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 PC's 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. Notices. Section 17. (f) of the Put/Call Agreement
shall be amended and restated to provide as follows:
(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 PC or Dr. Azani:
Daniel Azani, D.D.S., Inc.
5400 Balboa Blvd., Suite 321
Encino, California 91316-1502
Attn: Daniel Azani, D.D.S.
If to the MSO:
Azani Dental Services, Inc.
3621 Silver Spur Lane
Acton, CA 93510
If to OMEGA:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510"
5. Ratification of Other Provisions of Management
Agreement. Except as provided herein, all other provisions,
terms and conditions of the Management Agreement are hereby
ratified and confirmed.
IN WITNESS WHEREOF, the PC, Dr. Azani, MSO and OMEGA have
executed this Amendment Agreement as of the date first above
written by their duly authorized representatives as set forth
below.
"PC"
DANIEL AZANI, D.D.S., INC.
a California professional corporation
By: /s/ Daniel Azani, D.D.S.
Daniel Azani, D.D.S., President
"Dr. Azani"
/s/ Daniel Azani, D.D.S.
Daniel Azani, D.D.S.
"MSO"
AZANI DENTAL SERVICES, INC.
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By: /s/ Robert J. Schulhof
Robert J. Schulhof, President and
Chief Executive Officer
Exhibit 10.49
1
CONSULTING AGREEMENT
THIS AGREEMENT dated February 20, 1998 ("Agreement") sets forth
the terms, conditions, obligations and benefits by and between
Company Orthodontics, Inc., a Delaware Corporation, with offices
at Boston, MA (hereinafter the "Company") and Peter I. Wexler, of
Newton, MA (hereinafter the "Consultant") for the provision of
the services set forth below.
WHEREAS, the Company desires to retain Consultant for the period
and upon and subject to the terms and conditions herein provided;
and
WHEREAS the Consultant is willing to agree to be retained by
Company upon and subject to the terms herein provided;
NOW THEREFORE, in consideration of the premises, the mutual
covenants and agreements set forth herein and for other good and
valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
RETENTION OF CONSULTANT
Company agrees to retain Consultant as a legal and business
management consultant and advisor in connection with the
operation of the Company's business.
TERM OF AGREEMENT
Consultant agrees to be retained by Company and Company agrees to
retain Consultant for a period of three (3) years, commencing
March 9, 1998, and expiring on March 9, 2001 (hereinafter the
"Term"), unless this Agreement is terminated prior to such date
in accordance with the terms of this Agreement. Commencing on
March 9, 2001 and on each March 9, thereafter, the term of this
Agreement shall be automatically extended for an additional year
unless either party gives notice of termination as provided in
this Agreement. Such notice to be delivered at least 90 days
prior to the date of termination.
SPECIFIC DUTIES AND RESPONSIBILITIES
During the term of this Agreement, and any extension thereof, the
Consultant shall render legal and business management services to
the Company in the capacity of Chief Legal Officer and shall be
available to the Company at all times reasonably requested by the
Company to serve in the aforementioned capacity and as an officer
of the Company.
INDEPENDENT CONSULTANT
The Consultant is retained by the Company only for the purpose
and the extent herein set forth and the Consultant's relationship
to the Company shall, during Term, be that of an independent
Consultant (except that Consultant shall be considered an officer
of the Company but not an Consultant). 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 Consultant benefit plans and
programs and the Consultants compensation shall be governed
exclusively by the terms of this Agreement.
WORKING FACILITIES
Consultant shall be provided with an office, and other
administrative support, such as a computer, technical assistance,
and such other facilities and services as reasonably necessary
for the performance of Consultant's work.
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 terms disability
insurance, participation in a profit sharing or pension plan,
paid sick leave or family leave.
LIABILITY COVERAGE
Company will maintain standard directors and officers liability
insurance coverage in a reasonable amount of no less than One
Million ($1,000,000.00) Dollars to idemnify Consultant from any
claims made against him in his capacity as Chief Legal Officer.
Such insurance shall name Consultant as an additional insured and
such insurance shall have appropriate waivers of subrogation and
release of liability.
BOARD RELATIONSHIP
Consultant shall be generally responsible to the Chief Financial
Officer of Company, shall meet with the Chief Financial Officer
as the needs of Company dictate, and shall attend Board of
Directors and other meetings as the Chief Financial Officer deems
necessary.
PROFESSIONAL INSURANCE, SUBSCRIPTIONS AND DUES
Company agrees to reimburse Consultant for all reasonable costs
for the retention by Consultant of professional liability
insurance, acquisition of journals and dues for professional
organizations, including Massachusetts Bar Dues, related to the
performance of his duties and responsibilities under this
Agreement. Any such journals will remain the property of
Company.
EXPENSES
Company agrees to reimburse Consultant for all out-of-pocket
expenses, including, but not limited to telephone charges, food,
travel and lodging, incurred in the course of all Company related
business, whether in state or out of state.
CONSULTATION
Consultant retains the right to render consulting and teaching
services to other organizations. Any and all fees for such
consulting and teaching shall belong to Consultant. Any
consultation or teaching services rendered within normal working
hours or taking more than twenty hours per week shall be subject
to prior approval by the Chief financial Officer of Company.
COMPENSATION
In consideration of the consulting services to be performed by
Consultant as set forth herein, the Company shall pay each month,
for during the Term, to Consultant a monthly fee of seven
thousand three hundred fifty dollars (7,350.00) per month ("Base
Fee). Payments shall be direct deposit to such account as
Consultant shall designate.
No less frequently than annually, Company's Chief financial
Officer shall review Consultant's performance and shall provide
Consultant with an appropriate bonus to the extent warranted by
said review.
STOCK OPTIONS
In addition to the payment of the Base Fee set fourth above, upon
execution of this Agreement, Company shall irrevocably grant to
Consultant a non-qualified stock option under the Company's
Incentive Stock Plan an option to acquire Twenty Five Thousand
(25,000) shares of Company's Common stock at an exercise price
equal to the average price per share for the week ending February
13, 1998.
(b) Consultant's options shall vest in three equal installments
of $8,333, per year, beginning March 2, 1999 and fully on March
2, 2001, provided, however, if Company is to be sold, liquidated,
merged with another corporation or if the current ownership no
longer maintains 50% of the ownership of Company or surviving
corporation, the time for exercise of all unexercised portions of
Consultant's stock option shall be accelerated to the day
immediately prior to the effective date of such sale,
liquidation, merger or loss of control.
(c) The option shall be non-transferable except that said
options shall inure to the benefit of Consultant's heirs in the
event of his death. This option shall survive termination of
this Agreement.
TERMINATION
By Consultant
Consultant may voluntarily terminate his services with Company at
any time during the Term upon ninety (90) days' written notice of
voluntary termination.
By Company
1. For Cause
Company may terminate Consultant's services hereunder for
Good Cause upon notice to Consultant setting forth in detail
the nature of such Good Cause. The following, ad determined
by the Board of Directors in its reasonable judgment, shall
constitute Good Cause for termination:
(a) Consultant's consistent refusal to perform (other than by
reason of disability or for reasons outside Consultants
reasonable control), without just cause, or for material
negligence in the performance of, his duties and responsibilities
to Company or any of its affiliates;
(b) Material breach by Consultant of any provision of this
Agreement;
(c) Other conduct by Consultant that is substantially harmful to
the business, interests or reputation of Company or any of its
affiliates.
2. Without Cause
In the event of Consultant's death or permanent disability,
a substantial reduction in his duties or offices or if
Company terminates his services for any reason other than a
termination for cause as set forth above, in addition to
this other rights and remedies, Company shall pay Consultant
a lump sum representing the total aggregate amount of the
Base Fee for the entire Term of the Agreement. Company
shall give Consultant three (3) months written notice prior
to any termination of services. This provision shall
survive termination of this Agreement.
3. Termination By Company in the Event of a Change of Control
Notwithstanding any other provision of the Agreement to the
contrary, if Company terminates Consultant within six (6)
months of a Change of Control of Company as defined in this
subparagraph, Company shall pay Consultant a lump sum
representing the total aggregate value of the Base Fee which
would have been earned by Consultant during the Terms of the
Agreement. Company shall give Consultant sixty (60) days'
written notice of said termination. Notwithstanding any
other provision of the Agreement, Consultant shall have the
right to terminate his services with Company within six (6)
months of Change of Control of Company as defined in this
subparagraph upon thirty (30) days' written notice of said
termination. Upon Consultant exercising said right to
terminate his services upon a Change of Control, Company
shall pay Consultant a lump sum representing the total value
of the Base Fee which would have been earned by Consultant
during the Terms of the Agreement. This provision shall
survive termination of this Agreement.
For purposes of this Agreement, "Change of Control" means
any one of the following:
(a) Any change in ownership of 25% or more of the assets of
Company;
(b) Any change in the composition of Company's Board of
Directors ("Board") such that those individuals who, as of March
9, 1998, were members of the Board cease for any reason to
constitute at least a majority of the Board;
(c) A liquidation or dissolution of Company;
(d) The disposal of all or substantially all of the assets of
Company;
(e) Any merger or consolidation of Company with, or any
acquisition of Company by, any other person or entity.
EFFECT OF TERMINATION
Upon termination of this Agreement as provided herein,
neither party shall have any further obligation hereunder
except for (a) obligations, promises or covenants contained
herein that expressly extend beyond the term of this
Agreement or which necessitate acts or omissions to occur
beyond the term of this Agreement; (b) obligations accruing
prior to the date of termination.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
Notwithstanding anything in this Agreement to the contrary
in no event, and under no circumstances shall Consultant be
liable for any form of direct, indirect, special, incidental
or consequential damages arising in any way out of or in
relation to the performance of its obligations under this
Agreement. Company hereby releases Consultant from any and
all liability and agrees to indemnify, defend and hold
harmless Consultant from and against any and all claims,
including claims of professional negligence or misconduct,
shareholder and third party claims, demands or judgments
make against Consultant as a result of Consultants
performance of this Agreement. The foregoing shall apply
whether any such claims or liability arise in contract, tort
or otherwise, irrespective of fault negligence or strict
liability.
NOTICES
All notices and other communications hereunder shall be in
writing and shall be deemed to have been given three days
after having been delivered or mailed by first-class,
registered or certified mail, or twelve hours after having
been sent by fax or telegram, charges prepaid, as follows:
(a) if to Consultant, at 14 Mt. Ida Street, Newton, MA 02158
or to such other person(s) or address(es) as Consultant
shall have furnished to Company in writing; and (b) if to
Company, Edward Mulherin, 23 Chatham Street, Boston, MA
02158, or to such other person(s) or address(es) as Company
shall have furnished to the Consultant in writing.
ASSIGNABILITY
In the event that Company shall be merge with, or
consolidated into, any other corporation, or in the event
that it shall sell and transfer substantially all of its
assets to another corporation or entity, the terms of this
Agreement shall inure to the benefit of, and be assumed by,
the corporation or entity resulting from such merger or
consolidation, or to which Company's assets shall be sold
and transferred. This Agreement shall not be assignable by
Consultant.
ENTIRE AGREEMENT
This Agreement contains the entire agreement between Company
and Consultant with respect to the subject matter hereof and
there have been no oral or other prior agreements of any
kind whatsoever as a condition, precedent or inducement to
the signing of this Agreement or otherwise concerning this
Agreement or the subject matter hereof.
AMENDMENTS
This Agreement may not be amended, nor shall any change,
waiver, modification, consent or discharge be effected
except by written instrument executed by Company and
Consultant.
SEVERABILITY
If any part of any term or provision of this Agreement shall
be hold or deemed to be invalid, inoperative or
unenforceable to any extent by a court of competent
jurisdiction, such circumstance shall in no way affect any
other term or provision of this Agreement, the application
of such term or provision in any other circumstances, or the
validity or enforceability of this Agreement.
GOVERNING LAW
This Agreement shall be governed by and construed an
enforced in accordance with the law of the Commonwealth of
Massachusetts, without regard to conflict of law principles.
Each party agrees to the exclusive jurisdiction of any state
or federal court located within Massachusetts.
WITNESS OUR HANDS AND SEALS THIS 20th DAY OF FEBRUARY, 1998.
CONSULTANT COMPANY ORTHODONTICS INC.
/s/ Peter I. Wexler By: /s/ C. Joel Glovsky
Peter I. Wexler Dr. Joel Glovsky
Chairman of the Board
WITNESS
/s/ Edward M. Mulherin
Edward M. Mulherin
Exhibit 10.50
C:\FILES\OME\AZANI\NPN01DV8.A03
NON-NEGOTIABLE PROMISSORY NOTE
$30,000.00
Acton,
California
January 21,
1998
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware
corporation ("Omega"), promises to pay to Daniel Azani, D.D.S.
("Dr. Azani") at 5400 Balboa Blvd., Suite 321, Encino, California
91316-1502 or other location specified by Dr. Azani in writing,
Thirty Thousand Dollars ($30,000.00) together with interest on
any and all principal amounts, such interest to be at the rate of
8% per annum and payable monthly on the first day of each month,
beginning with the first month following the date of this Note.
1. Payments. Payments of principal and interest under
this Note shall commence on April 1, 1998. Principal shall be
due and payable in 48 equal monthly installments on the first day
of each calendar month, together with interest on the outstanding
balance since the last payment date. 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. Adjustment of Principal Amount. Dr. Azani acknowledges
that this Note is tendered as partial consideration for the
merger of Azani Dental Services, Inc., a Delaware corporation,
into and with Omega Orthodontics of Woodland Hills, Inc., a
Delaware corporation and a wholly owned subsidiary of Omega,
under that certain Affiliation and Merger Agreement by and
between Azani Dental Services, Inc., and Omega Orthodontics of
Woodland Hills, Inc., dated January 17, 1998 (the "Merger
Agreement") and as amended under that certain Amendment
Agreement, dated January 19, 1998. Under Section 1.2 (c) and (d)
of the Merger Agreement, as amended by the Amendment Agreement,
the principal amount of this Note shall be reduced, effective as
of March 1, 1999, by the amount of any Note Reduction, as defined
in the Amendment Agreement. Any such reduction in the principal
amount of this Note shall be retroactive to the date hereof. Any
excess interest payments due to such retroactive reduction in the
principal amount hereof shall be credited against the principal
amount of this Note and shall be deemed to reduce the outstanding
balance as of the date of payment.
3. Acceleration/Events of Default. At the option of Dr.
Azani, 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.
4. 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.
5. Voluntary Prepayment. Omega may prepay this Note in
whole or in part at any time without penalty or premium, upon
written notice to Dr. Azani.
6. Expenses. Omega agrees to pay all expenses, including
reasonable attorney's fees, which Dr. Azani may incur in
effecting collection of this Note upon default or at maturity.
7. Delays. Dr. Azani 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. Azani. 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. 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.
9. Remedies. Omega hereby acknowledges and agrees that no
remedy of Dr. Azani 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.
10. 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.
Azani 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.
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.
/s/ Diane Kessler By: /s/ Robert J.
Schulhof
Robert J. Schulhof,
President
BOST1-636889-1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF OMEGA ORTHODONTICS, INC.
Name of Subsidiary State of Incorporation
Omega Orthodontics of Champaign, Illinois
Inc.
Omega Orthodontics of Colorado Delaware
Springs, Inc.
Omega Orthodontics of Woodland Delaware
Hills, Inc.
Omega Orthodontics Management of Texas
Austin, Inc.
Omega Orthodontics of Elko, Inc. Delaware
Omega Orthodontics of Goodyear, Delaware
Inc.
Omega Orthodontics of Huntington Delaware
Beach, Inc.
Omega Orthodontics of Reno, Inc. Delaware
Omega Orthodontics of Conyers, Delaware
Inc.
Omega Orthodontics of Watertown, Delaware
Inc.
Omega Orthodontics of Reseda, Delaware
Inc.
Omega Orthodontics of Virginia, Delaware
Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,421,721
<SECURITIES> 0
<RECEIVABLES> 926,271
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,574,642
<PP&E> 526,828
<DEPRECIATION> 23,489
<TOTAL-ASSETS> 12,310,521
<CURRENT-LIABILITIES> 1,814,968
<BONDS> 0
0
0
<COMMON> 43,388
<OTHER-SE> 9,983,614
<TOTAL-LIABILITY-AND-EQUITY> 12,310,521
<SALES> 975,918
<TOTAL-REVENUES> 975,918
<CGS> 0
<TOTAL-COSTS> 4,606,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,489
<INCOME-PRETAX> (3,643,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,643,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,643,125)
<EPS-PRIMARY> (1.59)
<EPS-DILUTED> (1.59)
</TABLE>