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, 1998
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 Identification No.)
Incorporation or Organization)
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, 1998 were
$7,387,585.
The aggregate market value of the voting stock held by non-affiliates as
of February 27, 1999 was $2,486,584. 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, 1999, 5,052,584 shares of Common Stock were
outstanding, and 2,070,000 Redeemable Common Stock Purchase Warrants were
outstanding.
<PAGE>
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 the Management's Discussion and
Analysis - "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 therein. Factors that could
cause or contribute to such differences include those discussed in Management's
Discussion and Analysis as well as those discussed elsewhere herein or the
documents incorporated herein by reference.
Item 1. Description of Business
Introduction
Omega Orthodontics, Inc. ("the Company" or "Omega") provides management
and marketing services primarily to Orthodontic and other specialty dental
practices in the United States. Since its inception in August 1996, Omega has
provided these services on a fee for services basis and following its initial
public offering on October 1, 1997, the Company typically continues to offer its
services under an affiliate relationship with each practice, whereby the Company
purchases the equity interests in a management services organization ("MSO")
that holds certain assets of and is associated with an affiliate of the Company
("Affiliated Practices" or "Orthodontic Affiliate(s)") and enters into a
long-term management services agreement ("Management Services Agreement") with
the Orthodontic Affiliate.
As of December 31, 1998, the Company had 15 operating Orthodontic
Affiliates, consisting of 18 doctors in 10 states. Of the 15 Orthodontic
Affiliates, one is based on an interim management agreement with the practice
under terms similar to its standard Affiliation Agreements.
Recent Developments
On March 15, 1999 the Company executed a certain Agreement and Plan of
Merger among Pentegra Dental Group, Inc., a Delaware corporation, Omega
Acquisition Corporation, a Delaware corporation, the Company and Robert J.
Schulhof. Pursuant to the terms of the Agreement, each share of Company Common
Stock will be converted into the right to receive such number of shares of
issued, fully paid and nonassessable common stock of Pentegra which is equal to
1.8 million divided by the number of issued and outstanding shares of Company
Common Stock. Management believes that the merger will bring together two
organizations that share common values and have compatible strategies. In
addition Management believes that the merger will significantly enhance
shareholder value by enabling the combined assets of Pentegra and the Company to
produce a higher return on capital than the Company could achieve on a stand
alone basis. The Company believes that the merger will enable the combined
company to be an effective competitor in an industry that is becoming more and
more competitive.
The merger is subject to shareholder approval, as well as other customary
conditions. The Companies expect to provide details of the proposed merger to
their shareholders prior to seeking their approval at a special meeting of the
shareholders called for such purpose.
Business Operations
Pursuant to its Management Service 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 Orthodontic Affiliate's
profitability by focusing on and improving customer service while simultaneously
reducing costs and increasing operating efficiency.
Since its inception, Omega has sought 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 the
average income levels and concentration of families with children in the area.
The Company's strategy is to (i) enter into affiliation relationships and
Management Service Agreements with established orthodontic practices that meet
the Company's criteria and (ii) achieve operating efficiencies and increased
profitability for each such practice through 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.
To date, the Company has focused its 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
affiliates or 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 affiliation with the Company an attractive
alternative for orthodontists planning their transition to retirement. The
Company also targets younger orthodontists who may want to merge their practices
with the practice of an orthodontist in transition or take over such a practice.
The Orthodontic Industry
General. 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 5 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 5% 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 10 years ending in 2002 than in the prior 10-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 will reduce per patient
treatment costs. In addition, the Company believes that the well managed
orthodontic practice will 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, will expand 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
Over the past year, the Company's strategy has been to seek out and
affiliate with established orthodontic practices that it believes have potential
for significant growth utilizing the Model. Upon the consummation of an
Affiliation, the Company implements the Model in an effort to achieve operating
efficiencies and increase profitability for the practice.
At the present time, the Company believes that due to its size and capital
resources limitations, the ability of the Company to continue external expansion
will depend upon the availability of additional financing to fund additional
affiliations, which may be obtained through the development of strategic
alliances with other companies. Over the past year, the Company has evaluated
and held discussions regarding such potential strategic alliances with other
companies. In doing so, the Company has been following a policy that it will
publicly announce proposed transactions only upon the signing of definitive
agreements. However, no assurance can be given that discussions regarding any
particular affiliation will lead to the signing of definitive agreements.
The Company's future success will largely depend upon the development of
strategic alliances mentioned above or its ability to increase the internal rate
of return from its current practices, as well as to lower current operating
costs. The Company believes that the addition of nine new practices in the
twelve months ended December 31, 1998, three of which were consummated in the
third quarter of 1998, will contribute significantly to future revenues.
In affiliating with the new practices and in searching for future
affiliates, the Company will continue to conduct a comprehensive analysis of the
prospective affiliate, 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 Company analyzes the
prospective affiliate'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.
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. At year end 1998, Affiliates were situated in
the following locales: Goodyear and Bullhead City, Arizona; Huntington Beach,
Acton, Hawthorne, Garden Grove, Woodland Hills, and Encino, California; Colorado
Springs, Colorado; Champaign, Illinois; Elko and Reno, Nevada; Austin, Texas;
Conyers, Georgia; Bend, Oregon; Glen Allen, Virginia; and Watertown, Brookings
and Sisseton, South Dakota.
If the practice satisfies the Company's criteria for an affiliation, an
offer is made for the practice to become an Affiliated Practice. 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 practice Management Services Agreement. The Company
has paid, on average for each of its current Affiliated Practices, an aggregate
purchase price per MSO of approximately $567,000, of which the cash portion was
approximately $292,000 and, in certain cases, issued notes bearing interest
ranging between 8.0% and 8.5% and ranging between $30,000 and $374,000.
Implementing the Omega Exception Practice Model. The Model is patient
centered and designed to promote customer service and increase the Orthodontic
Affiliate's productivity while permitting the orthodontist practicing at the
Orthodontic Affiliate (the "Affiliated Orthodontist") to continue to deliver
quality orthodontic treatment. The Model focuses the orthodontic team on
understanding patient expectations and provides the orthodontic team with the
training, systems and other tools necessary to meet or exceed those
expectations. The Model is generally implemented in the Affiliated Practice over
a period of 12 months and involves the active participation of the Company's
professional staff, the Affiliated Orthodontist and his or her staff, as well as
a practice facilitator assigned by the Company to oversee the entire
installation of the Model, 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 scheduling system also carefully
plans the Affiliated Orthodontist's time so that the patient is seen on schedule
and the treatment is performed within the allotted appointment time. The Model
offers flexible payment plans that meet the varying financial situations of the
patients and provides for the review of insurance benefits and credit issues
with the patient in advance so that patients coming to a first exam will have
sufficient information at the end of that exam to commit to the proposed plan of
treatment.
The Company believes that good communication between patients and the
orthodontic team is essential to building successful relationship and developing
customer satisfaction. The Company trains the Affiliated Orthodontist and his or
her staff in interpersonal skills and communication techniques and carefully
plans and scripts patient interactions so that the orthodontic 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 Model uses computerized analysis and video imaging
to provide the patient with a clear understanding of the proposed treatment,
including all planned tooth and jaw movements, and its intended results.
In order to enhance the total dental care the patient receives and to
improve the Orthodontic Affiliate's professional referral sources, the Model
also encourages frequent communication between the orthodontic team and the
referring dentist. Automated diagnostic letters that include a treatment status
report and video images of the patient are periodically delivered to the
referring dentist. Brief seminars on current orthodontic developments are
planned from time to time at the Orthodontic Affiliate's office in order to keep
referring dentists and their staffs informed and to promote opportunities for
professional and staff interaction. By encouraging the close integration of
orthodontic and general dental services, the Model promotes improved overall
dental care for the patient and fosters strong relationships with the general
dentists for future referrals.
The Company believes that a more productive practice also serves the
interest of the orthodontic patients. In order to increase the Orthodontic
Affiliate's productivity, the Model requires the orthodontic team to establish
operational goals, such as increasing the number of treatment starts, percentage
of patients seen on time and the revenue generated per minute of chair time. The
orthodontic team also sets financial and quality goals for the practice. In
order to assist the orthodontic team in accomplishing these goals, the Model
contains written policies and procedures for the orthodontic team to adopt and
follow. In addition, the Model will generally require either an upgrade to the
Orthodontic Affiliates present systems or the installation of 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
orthodontic team and the Company. The practice facilitator visits the
Orthodontic Affiliate monthly during this period to train the orthodontic team,
install systems and programs and audit and debug their performance. By the end
of the first 12 months, the Orthodontic Affiliate generally will have completed
the following tasks: (i) established a new staff organizational structure; (ii)
installed a communication and marketing system; (iii) installed a sophisticated
scheduling system to increase treatment productivity; (iv) instituted a new,
flexible fee and payment program; (v) installed a new or upgraded financial and
operational reporting system; (vi) conducted staff relationship training; (vii)
conducted initial and final patient surveys; and (viii) installed a patient
communication and treatment completion review program.
Agreements with Affiliated Orthodontists
The Company affiliates with orthodontic practices through a series of
contractual arrangements. Initially, the Company and an Affiliated Orthodontist
enter into an Affiliation Agreement through which the Company acquires the
equity interests in the MSO associated with the Affiliated Orthodontist's
practice. (The Company may cause a wholly-owned subsidiary to acquire the equity
interests in the MSO to reduce adverse tax consequences in certain cases.) The
Affiliated Orthodontist, who generally practices through and holds the practice
assets in a professional corporation, converts that entity into a general
corporation (the MSO) and creates a new professional corporation through which
the Affiliated Orthodontist continues to provide orthodontic care (the
Orthodontic Affiliate). The Company acquires the equity interests in the MSO,
and the Affiliated Orthodontist causes the Orthodontic Affiliate to enter into a
long-term Management Services Agreement with the Company.
Through the Management Services Agreement, the Company provides practice
management and marketing services, facilities and non-professional personnel to
the Orthodontic Affiliate for a monthly fee. In order to provide for an orderly
transition in the event that the Management Services Agreement is terminated or
expires or the Affiliated Orthodontist ceases practice with the Orthodontic
Affiliate, the parties enter into a Stock Put/Call Option and Successor
Designation Agreement (the "Put/Call Agreement"). This agreement creates for the
Affiliated Orthodontist certain rights and obligations to repurchase the
practice assets held by the Company in the event that the Management Services
Agreement is terminated and grants the Company certain rights to designate a
successor orthodontist to purchase the stock of the Orthodontic Affiliate when
the Affiliated Orthodontist ceases practice through retirement, death,
disability or in other enumerated cases.
Affiliation Agreement. The Affiliation Agreement is the mechanism through
which the Company acquires the equity interests in the MSO of the Orthodontic
Affiliate, typically in exchange for a combination of cash, a promissory note
and shares of Common Stock of the Company. The completion of the transaction
under the Affiliation Agreement is subject to certain conditions, including,
without limitation, that there has been no material adverse change to the
Orthodontic Affiliate between the time the Affiliation Agreement is signed and
the transaction is closed and that the Orthodontic Affiliate and the Company
have entered into the Management Services Agreement and the Put/Call Agreement.
Management Services Agreement. Pursuant to the Management Services
Agreement, the Company provides the Orthodontic Affiliate with comprehensive
management, financial and marketing services and facilities, equipment (in the
control of the Orthodontic Affiliate, where required by statute) and support
personnel required by the Orthodontic Affiliate to operate its clinical
orthodontic practice. The Company maintains existing orthodontic equipment at
the offices of the Orthodontic Affiliate at the Company's expense and, after
consultation with the Affiliated Orthodontist and agreement upon the equipment
needs of the Orthodontic Affiliate, purchases new equipment for use by the
Orthodontic Affiliate. The Company is appointed the sole and exclusive business
manager of the Orthodontic Affiliate. In addition to providing facilities,
equipment (in the control of the Orthodontic Affiliate, where required by
statute) and support services, the Company undertakes all purchasing, payment,
billing, collection and payroll functions for the Orthodontic Affiliate and
facilitates the implementation of the Model.
The Orthodontic Affiliate is solely responsible for and has complete
control and supervision over the professional aspects of its practice, as well
as the provision of all professional services, including, without limitation,
the selection of 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 Orthodontic Affiliate has sole authority to direct the
business, professional and ethical aspects of its practice. It makes all
professional hiring decisions, renders patient care, and keeps all patient
dental records. The Orthodontic Affiliate is also responsible for entering into
an employment agreement, including non-competition provisions, with each
orthodontist engaged by it, including the Affiliated Orthodontist, and paying
all salaries for dental professionals, professional licensure and board
certification fees and professional liability insurance premiums.
The Management Services Agreement 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 Orthodontic Affiliate only for "cause," which
includes the bankruptcy of or a material default by the other party. In exchange
for the performance of its duties and obligations under the Management Services
Agreement, the Company receives a monthly management fee. The fee, which varies
somewhat from practice to practice, is generally 65% to 75% of the Orthodontic
Affiliate's gross collections for the period. From the monthly fee, the Company
pays all of its expenses in providing services to the Orthodontic Affiliate,
including, without limitation, the salaries and benefits of the Company's
employees, the costs of any consultants, corporate overhead, lease obligations
and taxes. In the event that the gross collections of an Orthodontic Affiliate
in a given month are not sufficient to pay the entire amount of salaries,
benefits and other direct costs payable by the Orthodontic Affiliate and the
Company's monthly fee for such month, the Company anticipates making routine
advances to the Orthodontic Affiliate to fund any shortfalls for such month.
Such advances will generally be repaid by the Orthodontic Affiliate to the
Company without interest as adequate funds are generated by the Orthodontic
Affiliate in subsequent months.
Put/Call Agreement. The Put/Call Agreement governs the dissolution of the
affiliation between the Orthodontic Affiliate and the Company, whether caused by
a termination or expiration of the Management Services Agreement or as a result
of the cessation of practice by the Affiliated Orthodontist. In the case of a
termination or expiration of the Management Services Agreement, the Orthodontic
Affiliate may be required to repurchase the assets of the MSO utilized in the
practice of the Affiliated Orthodontist as set forth on the MSO's balance sheet
as of 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 Orthodontic
Affiliate). 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 Orthodontic Affiliate is
typically required to pay book value for the assets as shown on the MSO's
balance sheet, and, in the event the Orthodontic Affiliate 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 Orthodontist 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 Orthodontist
under the Affiliation Agreement, and (c) the value of that number of shares of
Common Stock issued to the Affiliated Orthodontist 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 Orthodontic Affiliate's determination to repurchase
such assets is delivered to the Company. When the Affiliated Orthodontist ceases
practicing with the Orthodontic Affiliate, whether as a result of retirement,
death, disability or other reason, the Company typically has the option to
designate a successor orthodontist to purchase the Orthodontic Affiliate from
the Affiliated Orthodontist in order to ensure that the Orthodontic Affiliate
continues to operate and to perform its obligations under the Management
Services Agreement. The Company may choose not to exercise this option where the
Affiliated Orthodontist proposes to sell the Orthodontic Affiliate to another
orthodontist previously approved by the Company to be the Affiliated
Orthodontist's successor in the ownership of the Orthodontic Affiliate.
Competition
The business of providing orthodontic services is highly competitive in
each of the markets in which the Company operates. Each of the Company's
Orthodontic Affiliates faces competition from orthodontists who maintain single
offices or operate a single satellite office, as well as from orthodontists that
maintain group practices or operate in multiple offices. The Orthodontic
Affiliates also compete with dentists who provide certain orthodontic services.
The provision of orthodontic services by such dentists has increased in recent
years.
At this time, the Company believes that there are four publicly-traded
companies actively competing in the orthodontic practice management market and
that there are several other companies participating in the market. In addition,
the Company believes that several general dental management services
organization may be taking steps to enter the orthodontic management area and
are establishing divisions to compete in the Company's target markets. The
Company believes that of the above-mentioned competitors, most are significantly
larger and have greater financial, marketing and other resources than the
Company. Management still believes the Company appeals to a niche orthodontic
market that relies primarily on traditional patient and general dentist
referrals to generate new business rather than relying on mass marketing and low
fees. However, given the disparity in resources, there can be no assurance that
the Company will be able to compete effectively.
Government Regulation
The field of orthodontics is highly regulated, and there can be no
assurance that the regulatory environment in which the Company operates will not
change significantly in the future. In general, regulation of health care
companies in increasing.
Every state imposes licensing requirements on orthodontics and on
facilities operated and services provided by orthodontists. In addition, federal
and state laws regulate health maintenance organizations and other managed care
organizations for which orthodontists may be providers. In connection with the
entry into new markets, the Company and its Affiliated Orthodontists may become
subject to compliance with additional regulations.
The operations of the Orthodontic Affiliates must meet federal, state and
local regulatory standards in the areas of safety and health. Based on its
familiarity with the operations of its current Affiliated practices and the
activities of the Affiliated Orthodontists, the Company believes that its
Orthodontic Affiliates are in compliance in all material respects with all
applicable federal, state and local laws and regulations.
The laws of many states prohibit orthodontists from splitting fees with
non-orthodontists and prohibit non-orthodontic entities (such as the Company)
from practicing dentistry, including orthodontics, and from employing
orthodontists or, in certain circumstances, orthodontic assistants. The laws of
some states prohibit advertising of orthodontic services under a trade or
corporate name and require that all advertising be in the name of the
orthodontist. A number of states also regulate the content of advertisement or
orthodontic services and the use of promotional gift items. A number of states
limit the ability of a non-licensed dentist or non-licensed orthodontist to own
equipment or offices used in an orthodontic practice. Some of these states allow
leasing of equipment and office space to an orthodontic practice, under a
bona-fide lease, if the equipment and office remain in the complete care and
custody of the orthodontist. Management believes, based on its familiarity with
the operations of its current Affiliated Practices, the activities of the
Company's Affiliated Orthodontists 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
Orthodontists or the operation of the Orthodontic Affiliates. In addition,
statutes in some states could restrict expansion of Company operations in those
jurisdictions.
The Company regularly monitors developments in laws and regulations
relating to dentistry. The Company may be required to modify its agreements,
operations and marketing from time to time in response to changes in the
business and regulatory environment. The Company plans to structure all of its
agreements, operations and marketing in accordance with applicable law, although
there can be no assurance that its arrangements will not be successfully
challenged or that required changes may not affect operations or profitability.
Employees
At December 31, 1998, the Company had approximately 160 employees and
utilized a number of independent contractors to assist with certain corporate
functions and to provide consulting services to orthodontic 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
Providing orthodontic services entails an inherent risk of professional
malpractice and other similar claims. Although the Company does not influence or
control the practice of dentistry by the Affiliated Orthodontists or have
responsibility for compliance with certain regulatory and other requirements
directly applicable to Orthodontic Affiliates, the contractual relationship
between the Company and the Orthodontic Affiliates may subject the Company to
medical malpractice actions. There can be no assurance that claims, suits or
complaints relating to services and products provided by Orthodontic Affiliates
will not be asserted against the Company in the future. The availability and
cost of professional liability insurance has been affected by various factors,
many of which are beyond the control of the Company. The cost of such insurance
to the Orthodontic Affiliates may have an adverse effect on the Company's
operations.
The Management Services Agreements will require the Orthodontic Affiliates
to maintain, at their expense, professional liability insurance for themselves
and each orthodontist employed by or otherwise providing orthodontic services on
behalf of the Orthodontic Affiliate in the minimum amount of $500,000 per
occurrence and $1,000,000 in the aggregate. In addition, each Orthodontic
Affiliate will undertake to comply with all applicable regulations and
requirements, and the Company will be indemnified under the Management Services
Agreements for claims against the Company arising in connection with actions by
the Orthodontic Affiliates. The Company has general liability insurance for
itself and requires that it be named as an additional insured party on the
professional liability insurance policies of the Orthodontic Affiliates pursuant
to the Management Services Agreement. The Company does not maintain professional
liability insurance for itself.
The Company maintains other insurance coverages including property,
workers' compensation and directors' and officers' liability insurance which
Management considers to be adequate for the size of the Company and the nature
of its business.
Item 2. Description of Property
The Company leases facilities for each of its current affiliates, under
various operating leases which expire at various times through October 2017. 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 3, 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 for 1998 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
First Quarter, 1998
Common Stock $3.25 $2.88
Warrants $0.44 $0.38
Second Quarter, 1998
Common Stock $2.38 $1.69
Warrants $0.31 $0.19
Third Quarter, 1998
Common Stock $1.44 $0.50
Warrants $0.13 $0.06
Fourth Quarter, 1998
Common Stock $0.94 $0.44
Warrants $0.06 $0.06
The Company has been notified by Nasdaq that it may be subject to delisting of
the Company's Common Stock and Warrants from the Nasdaq Stock Market for failure
to maintain a bid price in accordance with the Nasdaq's rules. The Company is
currently appealing Nasdaq's delisting notification and a written hearing on the
issues is anticipated to occur in April, 1999.
(b) Holders
As of February 27, 1999, there were approximately 50 stockholders of
record and approximately three (3) holders of record of the Redeemable Common
Stock Purchase Warrants. The number of record holders does not bear any
relationship to the number of beneficial owners of common stock or warrants.
(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) Use of Proceeds from Registered Securities
The net proceeds to the Company from the sale of securities on October 1,
1997 after deduction of underwriting discounts and other offering expenses was
approximately $9.5 million. The company used such net proceeds as follows: (i)
$1.1 million for the repayment of debt; (ii) $4.9 million to consummate
affiliations with the Affiliated Practices; (iii) $2.5 million for working
capital, equipment, leasehold improvements, repayment of notes payable and other
corporate purposes.
Item 6. Management's Discussion and Analysis
General
Omega was incorporated in Delaware in August 1996. Following its initial
public offering ("IPO") on October 1, 1997, the Company began to offer its
services primarily under an "affiliate" relationship whereby it purchases,
pursuant to an affiliation agreement ("Affiliation Agreement"), the equity
interests of a management services organization ("MSO") that holds certain
assets 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 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 or her 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 or other dental specialty 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 retains 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 interest 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, 5-year notes and unregistered Common Stock or stock
options. As of December 31, 1998, the Company had completed 17 affiliations with
an average MSO purchase price of approximately $567,000, of which the cash
portion was approximately $292,000.
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 10-year extensions. While each Management Services Agreement is
negotiated based on specific circumstances, the management fees charged
typically range between 65% and 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. During the twelve months of 1998, the Company entered into
Affiliation Agreements with nine additional practices (three of which merged
with existing Affiliated Practices). Pursuant to those collective agreements,
the Company acquired the equity interests in the MSOs. Each of the Affiliated
Practices is typically operated with one practitioner, and a support staff of
three dental assistants and three office personnel. As of December 31, 1998, the
Company had 15 operating Affiliated Practices, consisting of 18 doctors in 10
states. Included in the Affiliated Practices is an interim management agreement
with one practice under terms similar to its standard Management Services
Agreement.
In consideration for acquiring the nine MSOs during the twelve months
ended December 31, 1998, the Company paid an aggregate of approximately $2.7
million in cash, issued an aggregate of approximately $986,000 in notes bearing
interest at 8.5%, assumed approximately $393,000 of liabilities and issued an
aggregate of 707,511 shares of Common Stock.
In light of current market conditions and the prevailing view of MSOs by
the dental industry, the Company expects that its future internal growth will
come from continuing to implement its Omega Exceptional Practice Model with
Affiliated Practices and the reduction of internal expenses through the
implementation of a comprehensive restructuring program to be implemented in the
first quarter of 1999.
As a result of the affiliations consummated by the Company during the
twelve (12) months ended December 31, 1998, the Company has depleted its capital
resources and is exploring avenues through which to improve its working capital
and cash position. The Company believes that active recruitment of additional
practice affiliations in the first half of 1999 will only serve to further
deplete the capital resources of the Company. Accordingly, the ability of the
Company to continue to pursue its business strategy will depend on obtaining
additional outside financing or pursuing other strategic alternatives. Such
financing and other alternatives may include the development of strategic
alliances with other companies, including competitors or other similarly
situated companies which present synergistic opportunities for the Company.
Other strategic alternatives may include merger opportunities.
From time to time the Company has evaluated and held discussions regarding
potential strategic alliances and merger opportunities with other companies. The
Company's policy is to make a public announcement only upon signing definitive
agreements. While the Company is seriously exploring a particular strategic
opportunity currently, there can be no assurance that the Company will be
successful in structuring an alliance which will foster the continued pursuit of
its current business strategy and goals. See, Recent Developments, above.
Results of Operations
For the year ended December 31, 1998, compared to the year ended December
31, 1997.
Revenues
Net revenue increased approximately $6,412,000 to approximately $7,388,000
for 1998 from approximately $976,000 in 1997. This growth was attributable to a
full year of operations for the seven affiliates purchased in 1997 and the
addition of eight affiliates in 1998.
Costs and Expenses
Costs and expenses increased approximately $3,344,000 to approximately
$7,950,000 for 1998 from approximately $4,606,000 in 1997. The company completed
its initial public offering on October 1, 1997 and completed affiliations with
seven practices. The costs and expenses increase for 1998 was attributable to a
full year of operations for the practices affiliated with in 1997 and the
addition of eight affiliations in 1998.
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 and increased approximately $2,970,000 to approximately
$3,715,000 for 1998 from approximately $745,000 in 1997.
Other Direct Costs. Includes dental and office supplies, laboratory
costs, facilities and equipment for the Affiliated Practices and
corporate office and increased approximately $963,000 to
approximately $1,136,000 for 1998 from approximately $173,000 in
1997.
General 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 and increased
approximately $1,664,000 to approximately $2,643,000 for 1998 from
approximately $979,000 in 1997.
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 and increased approximately $340,000 to approximately
$456,000 for 1998 from approximately $116,000 in 1997.
Non-recurring Consulting Expense. Relates to approximately $2.3
million value ascribed to stock and stock options issued to
consultants of the Company in April 1997 and $305,000 relates to
cash payments made in 1998 in connection with those stock grants.
Interest Expense
Interest expense of approximately $107,000 for the year ended December 31,
1998, reflects the cost of borrowings under notes payable to Affiliated
Practices issued as part of the purchase price for affiliating with those
practices. Interest expense of approximately $91,000 for the year ended December
31, 1997, reflects the cost of borrowing under bridge financing outstanding at
that time used to finance the cost of operations and IPO costs as well as the
cost of borrowing under notes payable to Affiliated Practices from the date of
the IPO until December 31, 1997. The bridge financing notes were paid in full
with a portion of the proceeds of the IPO.
Interest Income
Interest income was approximately $127,000 for the year ended December 31,
1998, and reflects interest earned on the Company's net proceeds from the IPO
and notes from related parties. Interest income was approximately $79,000.
Interest income is derived from interest earned on the net proceeds of the
bridge financing notes and net proceeds from the IPO from October, 1997 to
December 31, 1997.
Net Loss
As a result of the foregoing factors, the Company generated a net loss of
approximately $525,000, or $.11 per share, for the year ended December 31, 1998,
respectively, compared to a net loss of approximately $3.6 million, or $1.59 per
share, for the year ended December 31, 1997.
Liquidity and Capital Resources
The Company has financed its capital requirements to date with borrowings
from bridge and interim notes and the issuance of equity securities.
The Company has experienced operating losses, negative cash flows, a
deficit in working capital and an accumulated deficit since its inception. The
Company's accumulated deficit from inception (August 30, 1996) to October 1,
1997 (the Company's IPO) was approximately $3.9 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 and has reported a loss from operations for the year
ended December 31, 1998 of $525,000.
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 balance of
advances to Affiliated Practices as of December 31, 1998 was $300,000. Pursuit
of the Company's business strategy requires substantial capital resources.
Capital is needed not only for the affiliation with future Affiliated 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.
Since consummation of the Company's IPO, the Company has funded its
affiliations through use of a combination of cash, notes and shares of its
Common Stock. During 1998, the ability of the Company to use shares of Common
Stock for affiliations was adversely affected by the decrease in the market
value of the Common Stock. The decrease, as well as the relatively low market
value of the Common Stock in dollar terms, has affected the willingness of
owners of potential Affiliated Practices to accept Common Stock as full or
partial payment for their affiliations. Even if future affiliations could be
funded with the Company's Common Stock, such a use would result in substantial
dilution to existing shareholders. As a result, the Company has not consummated
an affiliation since August 1998 and the Company does not expect to be able to
consummate future affiliations unless there is a substantial improvement in the
market value of the Company's Common Stock and/or additional financing or other
strategic alternatives become available. During the year ended December 31,
1998, the Company paid approximately $2.7 million in cash and issued $986,000 in
notes bearing interest at 8.0% to 8.5%, assumed approximately $393,000 of
liabilities and issued approximately 707,511 shares of Common Stock in
connection with affiliations with Affiliated Practices.
Aside from cash flows derived from the investment of net proceeds from its
IPO, the Company has not realized positive cash flow from operations since its
inception. Accordingly, the Company has had to use net proceeds from its IPO for
its working capital requirements for its operations. At the year ended December
31, 1998 the Company had approximately $1,064,000 of working capital consisting
of cash and cash equivalents of approximately $982,000, all of which represented
remaining net proceeds from its IPO.
In order for the Company to grow, it is likely that the Company will be
required to seek additional financing for working capital and liquidity
purposes. Further, any additional financing obtained by the Company could have a
dilutive effect on existing stockholders. In the event the Company fully
utilizes the remaining net proceeds from its IPO to fund additional affiliations
and/or working capital requirements, and in the event the Company is not able to
thereafter continue to meet its working capital requirements or liquidity needs
with bank borrowings (which to date have been unavailable to the Company), the
Company will need to find other public or private debt or equity sources. The
availability of these capital sources will depend on prevailing market
conditions, interest rates and the financial condition of the Company. There can
be no assurance, however, that the Company will be able to obtain additional
financing for future affiliations or its working capital and liquidity needs.
See "Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995 - Doubt About Ability to Continue as a Going Concern."
As noted above, the Company is considering a number of strategic
alternatives, including specific strategic alliances and merger opportunities
with other companies. See "Recent Developments."
Year 2000
Like many other companies, the Year 2000 computer issue creates risk for
the Company. If both information technology systems and embedded technology do
not correctly recognize date information when the year changes to 2000, it could
have an adverse impact on the Company's operations. The Company is currently
confirming that its software and programming logic properly interprets Year 2000
dates and will review any embedded technology in its software and hardware to
determine whether the technology is compliant. If necessary the company will
update and remediate any non-compliant technology. The Company believes that all
of its software and hardware is currently compliant. Also, the Company does not
anticipate difficulty in resolving issues relating to software or embedded
technology in any programs or equipment provided by third-party vendors. In
addition, the Company believes that certain software employed by the Affiliated
Practices is not Year 2000 compliant. The Company is currently working with the
Affiliated Practices to repair any non-compliant software. It is unknown what
cost the company will incur to correct any non-compliant software.
Based on the Company's work to date and assuming that the software
updating projects can be implemented as planned the Company believes that it
will be Year 2000 compliant on a timely basis and that future costs relating to
the Year 2000 issue will not have a material impact on the Company's financial
position, results of operations or cash flows.
Once the Year 2000 remediation process is substantially complete the
Company intends to formulate a comprehensive contingency plan to address
remaining material risks, if any.
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
restructuring strategy and assumptions that the Orthodontic Affiliates 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 Annual Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, 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.
The following discussion identifies certain important factors that could
affect the Company's actual results and actions and could cause results and
actions to differ materially from any forward-looking statement made by or on
behalf of the Company related to such results and actions. Other factors, which
are not identified herein, could also have such an effect.
Continued History of Losses; No Assurance of Profitability. Although the
Company successfully completed its IPO in October 1997 and has consummated
affiliations with 15 Affiliated Practices, the Company has not yet achieved a
profitable level of operations. As a result, Omega remains subject to many of
the business risks associated with a new enterprise, including constraints on
its financial and personnel resources, lack of established business
relationships and uncertainties regarding affiliations and future profits. At
December 31, 1998, Omega had an accumulated deficit of $4,400,736. The Company
incurred an operating loss in the year ended December 31, 1998, of $525,000 and
may incur operating losses for the foreseeable future thereafter. There can be
no assurances as to whether the Company will ever be profitable.
Doubt About Ability to Continue as a Going Concern. The Company's
independent public accountants have audited the attached financial statements
and have prepared such financial statements assuming the Company will continue
as a going concern. See Note 1 to the financial statements.
Risks Associated with Expansion. Omega has consummated Affiliation
Agreements with the 15 Orthodontic Affiliates. The success of the Company's
business strategy will depend on a number of factors, including (i) the
Company's ability to attract orthodontists to affiliate with the Company, the
availability of suitable markets and the Company's ability to obtain good
locations within those markets; (ii) the Company's ability to locate existing
practices for affiliation, affiliate with such practices on favorable terms and
successfully integrate the affiliated operations into the Company's existing
operations; (iii) the availability of additional adequate financing to affiliate
with orthodontic practices, and (iv) regulatory constraints. There can be no
assurance that the Company's business strategy will be successful, that
additional modifications to the Company's strategy will not be required or that
the Company will be able to manage effectively and enhance the profitability of
its Orthodontic Affiliates.
Need for Additional Financing and Other Strategic Opportunities. The
Company's success will require substantial capital resources, in addition to
those currently available to the Company. The Company expects that its capital
needs over the next several years will substantially exceed capital generated
from operations and the net proceeds of this Offering. To finance its future
capital needs, the Company is exploring various financing and other strategic
alternatives. These include possible strategic alliances and merger
opportunities with other companies. With respect to additional financing, there
can be no assurance that the Company will be able to raise additional funds when
needed on satisfactory terms to the Company or at all. If additional funds are
raised through the issuance of equity securities, dilution to the Company's
stockholders may result. If adequate financing is not available when needed or
on terms acceptable to the Company, the Company's business strategy may be
materially adversely affected. With respect to other strategic alternatives,
there can be no assurance that the Company will be successful in structuring an
opportunity which will foster the Company's continued pursuit of its current
strategy and goals.
Dependence on Orthodontic Affiliates. The Company receives fees for
management services provided to Orthodontic Affiliates under Management Services
Agreements, but does not employ orthodontists or control practices of its
Orthodontic Affiliates. The Company's revenue is dependent on revenue generated
by the Company's Orthodontic Affiliates and, therefore, the performance and
professional reputation of Affiliated Orthodontists (those orthodontists who
practice through the Orthodontic Affiliates) and Orthodontic Affiliates are
essential to the Company's success. The Management Services Agreements with the
Orthodontic Affiliates are for terms of 20 years and are renewable at the
election of the Company for two additional 10 year periods. The Management
Services Agreements may only be terminated by either party for "cause," which
includes a material default by or bankruptcy of the other party. Any material
loss of revenue by the Orthodontic Affiliates would have a material adverse
effect on the Company.
Risk of Providing Orthodontic Services; Adequacy of Insurance. The
Orthodontic Affiliates provide orthodontic services to the public and are
exposed to the risk of professional liability and other claims. The Company does
not control the practice of orthodontics by its Orthodontic Affiliates or the
compliance with regulatory and other requirements directly applicable to the
orthodontists and their practices. The Company might nevertheless beheld liable
for negligence on their part.
The Management Services Agreements require the Orthodontic Affiliates to
maintain, at their expense, professional liability insurance for themselves and
each orthodontist employed by or otherwise providing orthodontic services for
the Orthodontic Affiliate in the minimum amount of $500,000 per occurrence and
$1,000,000 in the aggregate. In addition, each Orthodontic Affiliate has
undertaken to comply with all applicable regulations and requirements, and the
Company is indemnified under the Management Services Agreements for claims
against the Company arising in connection with actions by the Orthodontic
Affiliates. 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 Orthodontic Affiliates pursuant to the Management
Services Agreement. The Company does not maintain professional liability
insurance for itself.
There can be no assurance that the Company, its employees, the Orthodontic
Affiliates or the licensed orthodontists employed by or associated with the
Orthodontic Affiliate will not be subject to claims in amounts that exceed the
coverage limits or that such coverage will be available when needed. Further,
there can be no assurance that professional liability or other insurance will
continue to be available to the Orthodontic Affiliates in the future at adequate
levels or at acceptable costs. A successful claim against the Company or an
Orthodontic Affiliate in excess of the relevant insurance coverage could have a
material adverse effect upon the Company. Claims against the Company, regardless
of the merits or eventual outcomes, may also have a material adverse effect on
the Company.
Government Regulations. As noted above, federal and state laws extensively
regulate the relationships among providers of health care services, physicians
and other clinicians. These laws include federal fraud and abuse provisions that
prohibit the solicitation, receipt, payment, or offering of any direct or
indirect remuneration of for the referral of patients for which reimbursement is
made under any federal or state funded health care program or for the
recommending, leasing, arranging, ordering or providing of services covered by
such programs. States have similar laws that apply to patients covered by
private and government programs. Federal fraud and abuse laws also impose
restrictions on physicians' referrals for designated health services covered
under a federal or state funded health care program to entities with which they
have financial relationships. Various states have adopted similar laws that
cover patients in private programs as well as government programs. There can be
no assurance that the federal and state governments will not consider additional
prohibitations on physician ownership, directly or indirectly, of facilities to
which they refer patients, which prohibitations could adversely affect the
Company. Violations of these laws may result in substantial civil or criminal
penalties for individuals or entities, including large civil money penalties and
exclusion from participation in federal or state health care programs.
Moreover, the laws of many states prohibit physicians from sharing
professional fees, or "splitting fee", with anyone other than a member of the
same profession. These laws and their interpretations vary from state to state
and are enforced by the courts and by regulatory authorities with broad
discretion. Expansion of operations of the Company to certain jurisdictions may
require structural and organizational modifications of the Company's form of
relationship with Orthodontic Affiliates, which could have an adverse effect on
the Company. Although the Company believes its operations as currently conducted
are in material compliance with existing applicable laws, there can be no
assurance that a review of the Company's business by courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change so as to restrict the Company's existing operations or its expansion.
State Laws Regarding Prohibition of Corporate Practice of Orthodontics.
The Orthodontic Affiliates are formed as professional corporations owned by one
or more orthodontists licensed to practice dentistry under applicable state law
in states that prohibit the corporate practice of dentistry. Corporations such
as the Company are not permitted under certain state laws to practice dentistry
or exercise control over the dental judgments or decisions of practitioners.
Corporate practice of dentistry laws and their interpretations vary from state
to state and are enforced by the courts and by regulatory authorities with broad
discretion. Currently, the Company performs only non-orthodontic administrative
services, and does not represent to the public that it offers orthodontic
services. Nor does the Company exercise influence or control over the practice
of orthodontics by the practitioners with whom it contracts. Expansion of the
operations of the Company to certain jurisdictions may require structural and
organizations modifications of the Company's form of relationship with
Orthodontic Affiliates in order to comply with the dental practice laws, which
could have an adverse effect on the Company. Although the Company believes its
operations as currently conducted are in material compliance with existing
applicable laws, there can be no assurance that the Company's structure will not
be challenged as constituting the unlicensed practice of dentistry or that the
enforceability of the agreements underlying this structure will not be limited.
If such a challenge were made successfully in any state, the Company could be
subject to civil and criminal penalties under such state's laws and could be
required to restructure its contractual arrangements in that state. Such results
or the inability to restructure its contractual arrangements could have a
material adverse effect upon the Company.
Competition. The business of providing orthodontic services is highly
competitive in each market in which the Company intends to operate. Each of the
Orthodontic Affiliates faces competition from other orthodontists or general
dentists in the communities served, many of whom may have more established
practices in the market or greater financial and other resources than the
Orthodontic Affiliate. At this time, the Company believes there are several
other companies actively involved in consolidating and managing orthodontic
practices throughout the United States. These companies have greater financial
marketing and other resources than the Company. In addition, there are companies
pursuing similar strategies with respect to dental specialties, including
orthodontics, and additional companies with similar objectives may enter the
Company's market and compete with the Company. Many of the Company's competitors
may have substantially greater financial and other resources than the Company.
There can be assurance that the Company will be able to compete effectively.
Absence of Dividends. Omega has never declared or paid dividends on its
Common Stock and does not anticipate paying any dividends in the foreseeable
future. The Company expects that future earnings, if any, will be retained for
the growth and development of the Company's business, and, accordingly, the
Company does not anticipate that any dividends will be declared or paid on the
Common Stock for the foreseeable future.
No Assurance of Nasdaq Small Cap Market Listing; Risk of Low-Priced
Securities; Risk of Application of Penny Stock Rules. The Board of Governors of
the National Association of Securities Dealers, Inc. has established certain
standards for the initial listing and continued listing of a security on the
Nasdaq Small Cap Market. The standards for initial listing require, among other
things, that an issuer have net tangible assets of $4,000,000; that the minimum
bid price for the listed securities be $4.00 per share; that the minimum market
value of the public float (the shares held by non-insiders) be at least
$5,000,000; and that there be at least two market makers for the issuer's
securities. The maintenance standards require, among other things, that an
issuer have net tangible assets of at least $2,000,000; that the minimum bid
price for the listed securities be $1.00 per share, that the minimum market
value of the "public float" be at least $1,000,000; and that there be at least
two market makers for the issuer's securities. A deficiency in either the market
value of the public float or the bid price maintenance standard will be deemed
to exist if the issuer fails the individual stated requirement for ten
consecutive trading days. There can be no assurance that the Company will
continue to satisfy the requirements for maintaining a Nasdaq Small Cap Market
listing. As discussed above, the Company has been notified by Nasdaq that it may
be subject to delisting for failure to maintain the minimum bid price. A hearing
on this issue is anticipated to occur in April 1999. If the Company's securities
were to be excluded from the Nasdaq Small Cap Market, it would adversely affect
the prices of such securities and the ability of holders to sell them, and the
Company would be required to comply with the initial listing requirements to be
relisted on the Nasdaq Small Cap Market.
If the Company is unable to overturn Nasdaq's delisting determination
because of the Company's inability to satisfy maintenance requirements, the
Company's securities could become subject to certain penny stock rules
promulgated by the Securities and Exchange Commission (the "Commission"). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise
exempt from such rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of further reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock. As a result of the Common Stock becoming subject to the penny stock
rules, stockholders may find it more difficult to sell their shares.
Item 7. Financial Statements
OMEGA ORTHODONTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Consolidated Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Omega Orthodontics, Inc.:
We have audited the accompanying consolidated balance sheets of Omega
Orthodontics, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1998 and 1997, and the results of their
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its 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 that might result from the
outcome of this uncertainty.
Boston, Massachusetts /s/ ARTHUR ANDERSEN LLP
February 16, 1999
(except for the matter observed in Note 12, for which is March 15, 1999)
<PAGE>
OMEGA ORTHODONTICS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents (includes restricted
cash of $150,000) $ 982,157 $ 5,421,721
Receivable from affiliated practices, net of
allowance for doubtful accounts of
$121,583 in 1998 2,485,991 836,189
Notes and interest receivable from affiliated
practices 74,824 50,348
Notes and interest receivable from related parties 129,259 120,859
Prepaid expenses and other current assets 109,464 55,791
------- ------
Total current assets 3,781,695 6,484,908
Property and equipment, at cost, net 908,484 503,339
Intangible assets, net of accumulated amortization of
$337,059 and $35,145 in 1998 and 1997,
respectively 9,721,133 5,099,043
Other assets 42,985 80,303
------ ------
Total assets $14,454,297 $12,167,593
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand line of credit $ 149,772 $ -
Current portion of long-term debt 366,585 76,130
Accounts payable 158,537 155,671
Accrued expenses 229,602 359,540
Patient prepayments 1,813,433 775,699
Due to related parties - 305,000
----------- -----------
Total current liabilities 2,717,929 1,672,040
Long-term debt, less current portion 1,055,206 468,551
Total liabilities 3,773,135 2,140,591
----------- -----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.01 par value; 500,000
shares authorized; no shares issued - -
Common stock, $.01 par value; 9,500,000
shares authorized; 5,052,584 and 4,338,823 shares
outstanding at December 31, 1998 and 1997,
respectively 50,526 43,388
Additional paid-in capital 15,031,372 13,858,851
Accumulated deficit ( 4,400,736) ( 3,875,237)
Total stockholders' equity 10,681,162 10,027,002
----------- -----------
Total liabilities and stockholders' equity $14,454,297 $12,167,593
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
OMEGA ORTHODONTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended
December 31, 1998 December 31, 1997
Revenues:
Service fees $ 7,366,192 $ 918,312
Consulting fees 21,393 57,606
----------- -----------
Total revenues 7,387,585 975,918
----------- -----------
Costs and expenses:
Employee costs 3,715,246 744,731
General and administrative 2,643,084 979,247
Other direct costs 1,136,270 173,538
Depreciation and amortization 455,583 116,203
Non-recurring consulting expense - 2,592,500
----------- -----------
Total costs and expenses 7,950,183 4,606,219
----------- -----------
Loss from operations ( 562,598) ( 3,630,301)
Interest expense ( 106,800) ( 91,489)
Interest income 126,564 78,665
Other income 17,335 -
----------- -----------
Net loss ($ 525,499) ($3,643,125)
============ ============
Basic and diluted net loss per share ($ 0.11) ($ 1.59)
=============== ============
Weighted average number of common shares
outstanding 4,895,394 2,289,623
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
OMEGA ORTHODONTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number of $.01 Par Paid-in Accumulated Deferred Stockholders'
Shares Value Capital Deficit Compensation Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
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 2,070,000 20,700 9,504,487 - - 9,525,187
$3,101,831
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
Issuance of common stock
to new affiliated practices 707,511 7,076 1,164,146 - - 1,171,222
Issuance of common stock
to non-employee 6,250 62 8,375 - - 8,437
Net loss - - - ( 525,499) - ( 525,499)
--------- ---------- ----------- ---------- -------- -----------
Balance, December 31,
1998 5,052,584 $ 50,526 $15,031,372 ($ 4,400,736) - 10,681,162
========= ========== =========== ============ ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
OMEGA ORTHODONTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended
December 31, 1998 December 31, 1997
Cash flows from operating activities:
Net loss ($ 525,499) ($ 3,643,125)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for bad debts 121,583 -
Depreciation and amortization 455,583 116,203
Stock compensation 8,437 2,288,200
Changes in assets and liabilities,
excluding the effects of acquisitions:
Receivable from affiliated practices ( 1,520,063) ( 661,125)
Prepaid expenses and other current assets ( 53,673) ( 51,791)
Accounts payable 2,866 134,437
Accrued expenses ( 374,813) ( 260,890)
Patient prepayments 982,423 436,782
Due to related parties ( 305,000) 277,964
----------- -----------
Net cash used in operating activities ( 1,208,156) ( 1,363,345)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net ( 377,972) ( 93,716)
Decrease (increase) in other assets 27,721 ( 80,648)
Acquisition of management services
agreements and related assets ( 2,749,355) ( 2,216,134)
Notes receivable ( 82,876) ( 170,859)
----------- ------------
Net cash used in investing activities ( 3,182,482) ( 2,561,357)
----------- -----------
Cash flows from financing activities:
Debt financing costs - ( 22,049)
Repayment of borrowings ( 198,926) ( 1,089,000)
Proceeds from issuance of notes payable - 510,000
Proceeds from line of credit 150,000 -
Net proceeds from issuance of common
stock and warrants - 9,626,415
----------- -----------
Net cash (used in) provided by
financing activities ( 48,926) 9,025,366
----------- -----------
Net increase (decrease) in cash and
cash equivalents ( 4,439,564) 5,100,664
Cash and cash equivalents, beginning of period 5,421,721 321,057
----------- -----------
Cash and cash equivalents, end of period $ 982,157 $ 5,421,721
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 103,387 $ 97,607
=========== ===========
Supplemental disclosure of cash flows related
to acquisitions:
Fair value of assets acquired, excluding
cash $ 5,355,008 $ 5,708,177
Issuance of common stock ( 1,171,222) ( 2,077,202)
Issuance of notes payable ( 986,435) ( 440,868)
Payments in connection with acquisitions,
net of cash acquired ( 2,749,355) ( 2,216,134)
----------- -----------
Liabilities assumed $ 447,996 $ 973,973
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
OMEGA ORTHODONTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 and 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 1, 1997, the Company completed 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.
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 and/or strategic alliances and
partnerships will be required in future periods to meet the Company's strategic
business plan; therefore, management is exploring various alternatives.
The Company has incurred cumulative losses of $4,400,736 from inception through
December 31, 1998. Information subsequent to December 31, 1998 indicates that
losses are continuing. The Company has funded those losses primarily through the
sale of common stock. The Company is dependent on the proceeds from additional
financing, finding strategic alliances and/or restructuring its operations to
achieve its business plan. Management has entered into a merger agreement as
discussed in Note 12 and will implement as necessary a restructuring plan to
reduce operating expenses.
<PAGE>
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.
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 terms 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 orthodontic practices with which it
contracts.
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 a money market account at December 31, 1998 and
commercial paper at December 31, 1997 and are carried at cost, which
approximates market value. In addition, the Company has collateralized $150,000
of cash for a line of credit. (See Note 5)
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 and amortization expense is
provided using the straight-line method over the estimated useful lives of the
assets, three 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.
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.
Revenue Recognition
The Company's services are provided under Management Services Agreements and an
interim management agreement with an Affiliated Practice (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
The Company reports earnings (loss) per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share and Securities
and Exchange Commission (SEC) Staff Accounting Bulletin No. 98 (SAB 98).
<PAGE>
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
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. Basic and diluted loss per share do not include options and
warrants to purchase 2,323,333 shares of common stock in 1998 and 2,303,333
shares of common stock in 1997 because the effects are antidilutive.
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 risk and credit
risk concentrations. The Company maintains the majority of its cash balances
with one financial institution. The Company maintains reserves for the potential
write-off of accounts receivable. The Company's accounts receivable credit risk
is concentrated within the United States, and no customer represents 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.
Segment Reporting
The Company has adopted SFAS No. 131, Disclosures about Segments of and
Enterprise and Related Information in the fiscal year ended December 31, 1998.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. The Company's chief decision maker as defined
under SFAS No. 131 is the Senior Management Team. To date, the Company has
viewed its operations and manages its business as principally one operating
segment.
Post-retirement Benefits
The Company has no obligations for post-retirement benefits.
<PAGE>
Comprehensive Income
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 because there were no items
of comprehensive income, other than the Company's net loss.
New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Instruments. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Based upon the current
structure and operations, the Company does not anticipate that adoption of SFAS
No. 133 will have any effect on the financial statements.
Note 3 - Orthodontic Affiliations
On October 1, 1997, the Company entered into Management Services Agreements with
seven Affiliated Practices in the United States, simultaneously with the closing
of its initial public offering (see Note 1). During the period from the initial
public offering, October 1, 1997 through December 31, 1997, the Company
completed affiliations with two additional practices. For the year ended
December 31, 1998, the Company completed affiliations with nine practices, three
of which merged with existing affiliated practices.
Total consideration related to the affiliated practices for the years ended
December 31, 1998 and 1997 are summarized as follows:
1998 1997
---------- ----------
Value of common stock and options issued $ 1,171,222 $ 2,077,202
Cash paid 2,749,355 2,216,134
Notes payable 986,435 440,868
---------- ----------
Total $ 4,907,012 $ 4,734,204
========== ==========
<PAGE>
The cost of each MSO 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 $4.9 million and $5.1 million for 1998 and
1997, respectively. 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 MSO, including acquisition costs of
approximately $192,000 and $67,000 for 1998 and 1997, respectively, is as
follows:
1998 1997
---------- ----------
Patient receivables $ 234,910 $ 152,090
Property and equipment 196,094 421,900
Management service contract intangibles 4,924,004 5,134,187
Patient prepayments ( 55,311) ( 338,916)
Assumed liabilities ( 392,685) ( 635,057)
---------- ----------
$ 4,907,012 $ 4,734,204
========== ==========
Concurrent with the affiliation with the MSOs, the Company and each MSO entered
into a 20-year Management Services Agreement, renewable for two additional
10-year periods, with each Affiliated Practice. The agreement stipulates that
the MSO provide practice management and marketing services, facilities and
non-clinical personnel to the Affiliated Practices for a monthly fee, generally
equal to 65% to 75% of the Affiliated Practice's gross patient fee collections.
If the total expenses of each Affiliated Practice are below prescribed
percentages, the Affiliated Practice is entitled to receive 50% of the
difference. The 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 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 MSO has the right to require the Affiliated Practitioner to repurchase,
the non-clinical practice assets held by such MSO in the event that the
Management Services Agreement is terminated. Such purchases will generally
require payment of the book value of the net assets of the MSO. The MSO also has
certain rights to designate a successor orthodontist to acquire the practice of
the Affiliated Practitioner when the Affiliated Practitioner ceases practice.
In addition, during 1998, the Company entered into an interim management
agreement with a separate orthodontic practice, pursuant to which the Company
provides management services under essentially the same terms as its Management
Services Agreement.
<PAGE>
Note 4 - Property and Equipment
Property and equipment consist of the following at December 31:
1998 1997
---------- ----------
Leasehold improvements $ 399,935 $ 163,138
Office equipment 324,530 45,072
Dental equipment 253,756 272,486
Furniture and fixtures 90,648 46,132
---------- ----------
1,068,869 526,828
Less: accumulated depreciation
and amortization 160,385 23,489
---------- ----------
$ 908,484 $ 503,339
========== ==========
Note 5 - Debt
Long Term Debt
Long-term debt consisted of the following at December 31:
1998 1997
---------- ----------
Notes payable of affiliate practices assumed by the
Company, due in monthly installments ranging
from $100 to $1,213 through December, 2003,
with interest ranging from 4% to 13.2% and
secured by the personal guarantees of
the affiliated orthodontists. $ 192,441 $ 51,948
Unsecured notes payable to affiliate practices,
issued in connection with affiliation agreement
(see Note 3 ) due in monthly installments
ranging from $630 to $4,860 through January,
2003, with interest ranging from 8% to 8.5%. 1,219,068 436,868
Capitalized lease obligations, due in monthly
installments ranging from $652 to $1,646 through
December, 2003, with interest ranging from 13% to
23% and secured by certain equipment. Paid in full
in 1999. 10,282 55,865
---------- ---------
1,421,791 544,681
Less: current portion 366,585 76,130
$ 1,055,206 $ 468,551
========== ==========
<PAGE>
Maturities of long-term debt at December 31, 1998 are as follows:
1999 $ 366,585
2000 346,522
2001 361,135
2002 242,173
2003 33,142
Thereafter 72,234
----------
$ 1,421,791
==========
Line of Credit
The Company has a demand line of credit with a bank that provides for borrowing
up to $200,000 and expires on demand. Borrowings under the line of credit bear
interest at the bank's prime rate plus .5% (7.75% at December 31, 1998). The
line of credit is collateralized by $150,000 of cash held by the bank. As of
December 31, 1998, $149,772 was outstanding under the line of credit.
Note 6 - Stock Option Plan
The Company has adopted an Incentive Stock Plan (the Plan) pursuant to which
700,000 shares of common stock have been reserved for under the 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.
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.
<PAGE>
The following table summarizes option activity under the Plan:
1997
----------------------
Weighted Average
Exercise
Shares Price
------ --------
Outstanding, December 31, 1996 - -
Granted 370,000 5.84
Exercised - -
Terminated - -
------- ------
Outstanding, December 31, 1997 370,000 5.84
======= ======
Exercisable, December 31, 1997 150,000 $ 6.00
======= ======
1998
----------------------
Weighted Average
Exercise
Shares Price
------ --------
Outstanding, December 31, 1997 370,000 5.84
Granted 75,000 3.00
Exercised - -
Terminated - -
------- ------
Outstanding, December 31, 1998 445,000 5.36
======= ======
Exercisable, December 31, 1998 270,000 $ 5.78
======= ======
The following table summarizes information about stock options outstanding at
December 31, 1998:
Options Exercisable Options Exercisable
Weighted Weighted
-------- --------
Number Average Weighted Number Weighted
Exercise/Price Outstanding as Remaining Average Exercisable Average
Range of of December 31, Contractual Exercise at December 31 Exercise
Prices 1998 Life Price 1998 Price
- -------------- -------------- --------- ------- ----------- -------
$ 3.00 95,000 9.25 $ 3.00 20,000 $ 3.00
$ 6.00 350,000 8.32 $ 6.00 250,000 $ 6.00
-------- ------- ---- ------- ------- ------
$3.00 - $6.00 445,000 8.52 $ 5.36 270,000 $ 5.78
============ ======= ==== ======= ======= ====
Options available for future grant under the Plan as of December 31, 1998 were
255,000.
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.
The Company has computed the compensation expense required under SFAS No. 123
for options granted in 1997 and 1998 using the Black-Scholes option pricing
model prescribed by SFAS No. 123, using the following assumptions:
December 31, 1998 December 31, 1997
----------------- -----------------
Risk-free interest rate 5.39% - 5.65% 6.61%
Expected dividend yield - -
Expected lives 7 years 7 years
Expected volatility 108% 48%
Weighted average fair value of
options granted $ 2.21 $ 3.37
Weighted average remaining
contractual life 8.52 years 9.36 years
Had compensation cost for the Company's stock option plan been determined
consistent with SFAS No. 123, the Company's net loss and basic and diluted net
loss per common share would have been the following:
1998
Net loss available to common stockholders
As reported ( 525,499)
Proforma ( 913,899)
Basic and diluted net loss per common share
As reported ( 0.11)
Proforma ( 0.19)
As of December 31, 1997, none of the options granted to employees under the plan
had vested, and therefore, no proforma disclosure of compensation expense is
necessary. 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 7 - Stockholders' Equity
(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. At December 31, 1998, there
are no shares of preferred stock outstanding.
(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 783,333
Warrants to purchase common stock 2,070,000
Underwriter's warrants 360,000
---------
3,213,333
=========
Note 8 - 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, 1998, the Company had available net operating loss
carryforwards of approximately $2,940,000 available to reduce future federal
income taxes, if any. These carryforwards expire through 2013 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. Note 8 - Income Taxes - (Continued)
The approximate income tax effect of each type of temporary difference and
carryforward and valuation allowance is summarized as follows:
1998 1997
---- ----
Net operating losses $ 1,177,000 $ 1,084,000
Other temporary differences 44,000 ( 1,000)
Less: valuation allowance ( 1,221,000) ( 1,083,000)
----------- -----------
$ - $ -
=========== ===========
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 net deferred tax asset.
Note 9 - Related Party Transactions
The Company has an agreement with a private merchant 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.
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 paid additional 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 in 1997.
During 1997, three directors of the Company loaned an aggregate of $140,000 to
the Company and received 6,000 shares of the Company's common stock in
connection therewith. In addition, the three directors performed consulting
services for the Company, for which they were paid an aggregate of approximately
$166,000 in 1997.
The Company has employment contracts with two directors and a consulting
contract with one director, which became effective upon the completion of the
Company's initial public offering. The Company paid $360,000 and $75,000 in 1998
and 1997, respectively, 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 6).
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. In 1998, the
Company granted options to purchase 10,000 shares of common stock to its
Director Observer at an exercise price of $3.00 per share.
<PAGE>
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 $120,000
and $203,565 in 1998 and 1997, respectively in connection with the above
services. In addition, in 1998 the Company paid the accounting firm $63,244 for
additional accounting and computer consulting services and $38,944 for
reimbursed expenses 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 in 1997 (see Note 6).
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, issuance of 129,721 shares of the Company's common stock and the
assumption of certain liabilities.
During 1997, the Company loaned its President and CEO $100,000 and a director
$20,000 in exchange for demand promissory notes, which bear interest at the
prime rate (7.75% at December 31, 1998) plus 2%. Principal and interest are due
upon demand, but not later than December, 2000.
Note 10 - Commitments and Contingencies
Operating Leases
The Company leases facilities under various operating leases which expire
through October 2017. Future minimum lease payments at December 31, 1998 are
approximately as follows:
1999 $ 631,000
2000 585,000
2001 580,000
2002 541,000
2003 290,000
Thereafter 807,000
----------
$ 3,434,000
==========
Rent expense for all operating leases was approximately $648,000 and $86,100 for
the years ended December 31, 1998 and 1997, respectively.
Litigation
In the ordinary course of business, the Company is party to various types of
litigation. The Company believes it has meritorious defenses to all claims, and,
in its opinion, all litigation currently pending or threatened will not have a
material effect on the Company's financial position or results of operations.
Other
The Company is contingently liable for any increase in the purchase price to an
Affiliated Practitioner for an Affiliation completed in April 1998. Under the
terms of the agreement, the Company agreed to pay additional cash and stock if
certain operating criteria were met for the year ending March 31, 1999; the one
year anniversary of the affiliation. Any additional consideration payable to the
Affiliated Practitioner will be charged to operations when determined.
Note 11 - Accrued Expenses
Accrued expenses consist of the following at December 31:
1998 1997
Salary and related $ 117,155 $ 18,403
Professional fees 105,000 327,721
Rents 3,000 13,416
Other 4,447 -
---------- ----------
$ 229,602 $ 359,540
========== ==========
Note 12 - Subsequent Event
On March 15, 1999, the Company entered into an Agreement and Plan of Merger with
Pentegra Dental Group, Inc. ("Pentegra"), a multi-specialty dental practice
management company located in Arizona. The Company has agreed to exchange all of
its outstanding common stock for 1,800,000 shares of Pentegra's common stock.
The transaction requires shareholder approval of both companies.
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
DIRECTOR
NAME AGE POSITION SINCE
Robert J. Schulhof 57 President, Chief Executive 1996
Officer, Treasurer and Director
Dr. Dean C. Bellavia 55 Director of Affiliate Programs 1996
and Director
John J. Clarke, Jr. (1)(2 56 Director 1997
Floyd V. Elliott 56 Director of Professional 1996
Relations and Staff Development
and Director
Dr. C. Joel Glovsky (1)(2) 66 Chairman of the Board 1996
Dr. David T. Grove (2) 58 Director 1996
- -----------------------
(1) Member of the Company's Audit Committee.
(2) Member of the Company's Compensation.
Robert J. Schulhof, the Company's founder, has been the President and Chief
Executive Officer of the Company since its formation in August 1996. In 1995,
Mr. Schulhof founded OMEGA, LLC, a principal stockholder of the Company, and is
the sole manager of OMEGA, LLC. From 1990 to 1994, Mr. Schulhof was the Chief
Executive Officer of Solutions Providers, a California general partnership and a
firm that offered integrated computer technology and practice management
consulting services to the orthodontic industry, and from 1994 until he founded
OMEGA, LLC in 1995, Mr. Schulhof was an officer, director and principal
stockholder of Integrated Management Systems, Inc., a firm providing software
and consulting services to the orthodontic industry. He holds a masters degree
in Mathematical Statistics and Probability from the University of California at
Los Angeles.
Dean C. Bellavia is a co-founder of the Company and was employed as the
Director of Affiliate Programs since its formation in August 1996 until December
31, 1997. As of January 1, 1998, Dr. Bellavia entered into a consulting
agreement with the Company pursuant to which he continues to perform the
services he was performing as the Director of Affiliate Programs. Dr. Bellavia
is also the founder and President of The Bio Engineering Company, a consulting
firm serving the orthodontic industry which he will continue to operate to the
extent it does not adversely affect his duties for the Company. He holds a Ph.D.
in Bio-Engineering from Carnegie Mellon University.
John J. Clarke, Jr., was elected to the Board of Directors of the Company in
March 1997. Since 1971, Mr. Clarke has been a principal in Baldwin & Clarke
Companies, a diversified financial services organization that provides
investment banking and other financial advisory services. He is a director of
Centerpoint Bank, a wholly-owned subsidiary of Community Bankshares, Inc., a
bank holding company in Concord, New Hampshire. Mr. Clarke holds a B.A.
from Northeastern University.
Floyd V. ("Sonny") Elliott, joined the Company's Board of Directors in
December 1996 and since October 1, 1997 has been the Company's Director of
Professional Relations and Staff Development. Mr. Elliott is the founder and
President of Elliott Enterprises, a consulting firm serving the orthodontic
industry which he will continue to operate to the extent it does not adversely
affect his duties for the Company. Prior to founding Elliott Enterprises, Mr.
Elliott was President of Paradigm Practice Management, a management consulting
firm working primarily with orthodontic practices.
C. Joel Glovsky, a co-founder of the Company, has served as the Chairman of
the Board of Directors of the Company since its formation in August 1996. Dr.
Glovsky has been engaged in the private practice of orthodontics since 1961. He
is a graduate of the dental school of Tufts University and served as Assistant
Clinical Professor there for 15 years. Dr. Glovsky is a diplomat of the American
Board of Orthodontics. In October 1989, Dr. Glovsky co-founded The Standish Care
Company, an assisted living company, and he served on the Board of Directors of
Standish from 1989 to 1994.
David T. Grove, has served on the Board of Directors of the Company since
its inception in August 1996. Dr. Grove has been in the private practice of
orthodontics in Nevada since 1971. Dr. Grove holds a dental degree from the
University of Louisville, a Masters degree in Orthodontics from St. Louis
University and a Masters degree in education from the University of South
California. He served as Clinic Director for two years in the Orthodontics
Department at the University of California at San Francisco. He is the Chairman
of the Company's Clinical Advisory Board.
Meetings of the Board of Directors and Committees
The Board of Directors of the Company held five meetings during 1998. The
Board of Directors also acted on three occasions by unanimous written consent in
lieu of special meetings. Each director attended at least 75% of the aggregate
number of all meetings of the Board of Directors and committees of which he was
a member during 1998.
Board Committees
The Board of Directors has established an Audit Committee and a Compensation
Committee.
Audit Committee. The Audit Committee has the responsibility for reviewing
and supervising the financial controls of the Company. The Audit Committee makes
recommendations to the Board of Directors of the Company with respect to the
Company's financial statements and the appointment of independent auditors,
reviews significant audit and accounting policies and practices, meets with the
Company's auditors concerning, among other things, the scope of audits and
reports, and reviews the performance of overall accounting and financial
controls of the Company. The Audit Committee consists of Dr. Glovsky and Mr.
Clarke. The Audit Committee did not meet in 1998.
Compensation Committee. The Compensation Committee has the responsibility
for reviewing the performance of the officers of the Company and recommending to
the Board of Directors of the Company salary and bonus amounts for all officers
of the Company, subject to the terms of existing employment agreements. The
Compensation Committee also has the responsibility for oversight and
administration of the Company's stock and other compensatory plans. The
Compensation Committee consists of Dr. Glovsky, Dr. Grove and Mr. Clarke. The
Compensation Committee met twice in 1998.
Director Compensation
Members of the Board who are not full-time employees of the Company
(currently Dr. Grove and Mr. Clarke) receive a fee of $500 for each Board
meeting attended and a fee of $250 for each committee meeting attended. Such
Board members are reimbursed for their out-of-pocket expenses for each meeting
attended.
Executive Officers and Compensation
Executive officers of the Company hold their positions until the next annual
meeting of the Board of Directors and until their respective successors are
elected and qualified. In addition to Mr. Schulhof (President, Chief Executive
Officer and Treasurer) and Mr. Elliott (Director of Professional Relations and
Staff Development), Mr. Edward M. Mulherin and Mr. Peter I. Wexler are executive
officers of the Company.
Edward M. Mulherin has provided consulting services as the Chief Financial
Officer of the Company since October 1996. Such services have been provided
through LMG, a firm in which Mr. Mulherin is a principal stockholder and with
which he has been associated since 1991. Mr. Mulherin is a certified public
accountant and holds a B.S. in Accounting from Boston College and a J.D. from
Suffolk University Law School. Mr. Mulherin is 39.
Peter I. Wexler has served as the General Counsel of the Company since March
1998. From 1995 to 1998, Mr. Wexler was Corporate Counsel and Commercial Manager
for Stone and Webster Engineering Corporation, a global engineering and
construction company, where he specialized in domestic and international
transactions. Prior to Stone and Webster, Mr. Wexler was associated with the law
firm Jackson Parton in London, England. Mr. Wexler is 31.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who beneficially own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Commission and
the Nasdaq Stock Market. Directors, executive officers and greater than 10%
stockholders are required to furnish the Company with copies of all Forms 3, 4
and 5 they file.
Based solely on the Company's review of the copies of such Forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5, the Company believes that each person who was
a director, executive officer or greater than 10% beneficial owner of any class
of its equity securities during the year December 31, 1998 complied with all
Section 16(a) filing requirements applicable to them.
Item 10. Executive Compensation
The following Summary Compensation Table sets forth compensation
awarded to, earned by or paid to Robert J. Schulhof, the Company's Chief
Executive Officer. No other executive officer or director earned a salary and
bonus of more than $100,000 during either (a) the period from August 30, 1996
(inception) to December 31, 1996 or (b) either of the years ended December 31,
1997 or 1998. The Company entered into an employment agreement with Mr. Schulhof
effective January 1, 1997. See "Employment Agreements." The Company did not
grant any restricted stock awards, options or stock appreciation rights or make
any long-term incentive plan payouts to any named executive officer during such
periods, nor did any of the named executive officers own options or stock
appreciation rights during such periods. The Company has no defined benefit or
actuarial plans covering its employees.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Long Term
Compensation
Name and Fiscal Year Awards; Securities All Other
Principal Position Ended Salary ($) Bonus ($) Underlying Options Compensation ($)
- ------------------ ----- ---------- --------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Robert J. Schulhof 12/31/98 $ 120,000(1) $ 0 --- $ 3,400 (2)
President, Chief 12/31/97 $ 120,000(1) $ 0 --- $ 3,500 (2)
Executive Officer 12/31/96(3) 49,200 $ 0 --- ---
Edward Mulherin 12/31/98 $ 120,000 $ 0 --- ---
Chief Financial
Officer
Dean Bellavia 12/31/98 $ 120,000 $ 0 --- ---
Director of
Affiliate Programs
and Director
Floyd V. Elliott 12/31/98 $ 120,000 $ 0 --- ---
Director of
Professional
Relations and Staff
Development and
Director
====================================================================================================
</TABLE>
(1) Reflects amounts paid pursuant to an employment agreement between the
Company and Mr. Schulhof which became effective January 1, 1997.
See "Employment Agreements."
(2) Reflects amounts paid to Mr. Schulhof as an automobile allowance.
Employment Agreements
The Company has entered into employment agreements (individually, an
"Employment Agreement" and collectively, the "Employment Agreements") with each
of Mr. Schulhof, Dr. Bellavia (whose agreement has been terminated and replaced
with a consulting agreement -- see "Certain Relationships and Related
Transactions") and Mr. Elliott (collectively, the "Executives"). Mr. Schulhof's
Employment Agreement became effective January 1, 1997 and provides that he is
employed as the President and Chief Executive Officer of the Company. The
initial term of Mr. Schulhof's Employment Agreement is three years, and such
term will be extended automatically on January 1, 2000 and on each January 1
thereafter for an additional year, unless Mr. Schulhof receives notice of
termination prior to such extension. Mr. Schulhof is paid an annual base salary
of $120,000, which amount is subject to annual review, and bonuses, the amounts
of which are determined by the Compensation Committee. Mr. Schulhof also has the
use of a company car or, at his election, will be paid an automobile allowance
of $700 per month. During 1998, Mr. Schulhof received an automobile allowance of
$8,400.
Dr. Bellavia's Employment Agreement became effective upon the closing of
the Company's initial public offering of securities (the "IPO") and provided
that he was employed as the Director of Affiliate Programs of the Company. The
initial term of Dr. Bellavia's Employment Agreement was three years. Dr.
Bellavia was paid a monthly advance of $10,000, which advance was subject to
review and reduction in the event that certain affiliation targets were not met
by the Company. The Board of Directors of the Company determined that such
targets had been met during 1997, and no reduction of Dr. Bellavia's advances
was imposed. As of January 1, 1998, Dr. Bellavia and the Company terminated his
Employment Agreement and replaced it with a consulting agreement on
substantially the same terms. See "Certain Relationships and Related
Transactions" under Item 12 hereof.
Mr. Elliott's Employment Agreement became effective upon the closing of the
IPO and provides that he is employed as the Director of Professional Relations
and Staff Development of the Company. The initial term of Mr. Elliott's
Employment Agreement is three years, and such term will be extended
automatically on the third anniversary date of the effectiveness and on each
anniversary date thereafter for an additional year, unless either party receives
notice of termination prior to such extension. Mr. Elliott was paid a monthly
advance of $10,000, which advance was subject to review and reduction in the
event that certain affiliation targets were not met by the Company. The Board of
Directors of the Company determined that such targets had been met during 1997,
and no reduction of Mr. Elliott's advances was imposed. Beginning in 1998 and
thereafter, Mr. Elliott's Employment Agreement provides for a base salary of
$10,000 per month, which amount is subject to annual review, and bonuses, the
amounts of which are determined by the Compensation Committee.
The Employment Agreements may be terminated by the Company or the respective
Executives without cause with 90 days' prior written notice. If the Executive
suffers a "termination other than for cause" (as defined in the Employment
Agreements), including such termination within 24 months after a "change in
control" (as defined in the Employment Agreements), the Executive is entitled to
receive his accrued salary, earned bonus compensation, vested deferred
compensation (other than plan benefits which will be payable in accordance with
the applicable plan) and other benefits through the date of termination and
severance payments of salary (at the rate payable at the time of such
termination) for the longer of 12 months or the remaining term of the Employment
Agreement. Each of the Executives may elect to receive from the Company a lump
sum severance payment equal to the present value of the flow of cash flow from
the severance payments of salary. In addition, each Executive is entitled to an
accelerated vesting of any awards granted to the Executive under the Incentive
Stock Plan. Notwithstanding the foregoing, the Company is not required to pay
any amount which is not deductible for federal income tax purposes.
If the Executive is terminated for "cause" (as defined in the Employment
Agreements), he is entitled to receive his accrued salary, earned bonus
compensation, vested deferred compensation (other than plan benefits which will
be payable in accordance with the applicable plan) and other benefits through
the date of termination, but shall receive no other severance benefits. Each of
the Executives may also be terminated if he dies or becomes disabled for a
period of 12 consecutive months. In the event of termination due to death or
disability, the Executive (or his estate) shall receive the same payments, but
no additional severance, except that, if the Executive becomes disabled, the
Company will maintain his insurance benefits for the remaining term of his
Employment Agreement.
Incentive Stock Plan
Effective as of January 31, 1997, the Company adopted the Omega Orthodontics
Incentive Stock Plan (the "Incentive Stock Plan"). The Company reserved 300,000
of the authorized shares of Common Stock for issuance under the Incentive Stock
Plan. On April 28,1997, the Incentive Stock Plan was amended to increase the
number of shares of Common Stock authorized for issuance under the Incentive
Stock Plan to 450,000. On April 24, 1998, the Incentive Stock Plan was further
amended to increase the number of shares of Common Stock authorized for issuance
under such Plan to 700,000. Unless terminated earlier, the Incentive Stock Plan
will terminate on January 30, 2007. The Incentive Stock Plan is administered by
a committee consisting solely of two or more non-employee Directors (the
"Committee").
On April 28, 1997, the Committee granted options with respect to 350,000
shares of Common Stock to Dr. Bellavia, Mr. Elliott and LMG in the amounts of
50,000, 150,000 and 150,000 shares, respectively, at an exercise price of $6.00
per share. On December 24, 1997, the Committee granted options with respect to
20,000 shares of Common Stock to Mr. Clarke and Dr. Grove in the amounts of
10,000 shares each at an exercise price of $3.00 per share. On March 25, 1998,
the Committee granted options with respect to 25,000 shares of Common Stock to
Mr. Wexler and an aggregate of 30,000 shares of Common Stock to two employees at
an exercise price of $3.0625 per share. On August 28, 1998, 10,000 options were
granted to one employee and 10,000 options to Mr. Robert Daskal, an Observer
Director appointed by National Securities. At March 15, 1999 255,000 shares of
Common Stock were reserved for issuance pursuant to future grants under the
Incentive Stock Plan.
The options granted to Mr. Elliott, LMG, Mr. Wexler and the two employees
vest in three equal installments on each of the first three anniversaries of the
date of grant, the options granted to Dr. Bellavia vest fully on the first
anniversary of the date of grant and the options granted to Mr. Clarke and Dr.
Grove vest six months following the date of grant. On March 25, 1998, the
Committee voted to accelerate the vesting of the options granted to LMG
retroactively to December 31, 1997.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 15, 1999
with respect to the beneficial ownership of the Company's Common Stock by each
director, each named executive officer in the Summary Compensation Table under
"Executive Officers and Compensation" under Item 10 hereof, all directors and
executive officers as a group, and each person known by the Company to be the
beneficial owner of 5% or more of the Company's Common Stock. This information
is based upon information received from or on behalf of the named individuals.
Name and Address of Number of Shares
Beneficial Owner (1) Beneficially Owned Percentage
The Orthodontic Management Effectiveness
Group of America, LLC (2)
3621 Silver Spur Lane
Acton, CA 93510 1,050,000 20.8%
Robert J. Schulhof (3)
3621 Silver Spur Lane
Acton, CA 93510 1,050,000 20.8%
Putnam Investments, Inc. (4)
One Post Office Square
Boston, MA 02109 332,953 6.6%
C. Joel Glovsky (5)
44 Grey Lane
Lynnfield, MA 01940 231,000 4.6%
The Mayflower Group Ltd. (6)
393 Commonwealth Avenue
Boston, MA 02115 225,000 4.4%
David T. Grove (7)
581 12th Street
Elko, NV 89801 144,721 2.9%
Dean C. Bellavia (8)
44 Capen Boulevard
Buffalo, NY 14214 68,850 1.3%
Edward M. Mulherin (9)
63 Chatham Street
Boston, MA 02109 160,000 3.1%
Floyd V. Elliott (10)
2555 Homeland Drive
Elko, NV 89801 50,000 *
John J. Clarke, Jr. (11)
116 B South River Road
Bedford, NH 03110 10,000 *
All directors and executive officers as
a group (7 persons) (12) 1,714,571 32.2%
- ----------------------------
* Represents less than 1%.
(1) Except as otherwise indicated, the Company believes that the persons named
in the table above, based upon information furnished by such persons, have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property
laws where applicable. Amounts and percentages shown are based on
calculations that, pursuant to Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), include shares issuable
pursuant to stock options which may be exercised on or before March 15,
1999.
(2) The Company has relied on information reported on a Statement on Schedule
13G dated February 24, 1999 filed jointly by The Orthodontic Management
Effectiveness Group of America, LLC ("OMEGA, LLC") and Mr. Schulhof with
the Securities and Exchange Commission (the "Commission"). Mr. Schulhof
holds 330 membership points in OMEGA, LLC, or 27.7% of the voting power of
OMEGA, LLC, and is the sole manager of OMEGA, LLC with authority to vote
and dispose of shares of the Common Stock of the Company held by OMEGA,
LLC. Each of the following other directors of Omega holds more than five
percent of the membership points of OMEGA, LLC, and the amount of such
holdings is as set forth in the parenthetical following the holder's name:
C. Joel Glovsky (75 points or 6.3%); David T. Grove (150 points or 12.6%);
Dean C. Bellavia (100 points or 8.4%); and Floyd V. Elliott (20 points or
1.7%).
(3) The Company has relied on information reported on a Statement on Schedule
13G dated February 24, 1999 filed jointly by OMEGA, LLC and Mr. Schulhof
with the Commission. Includes the 1,050,000 shares held by OMEGA, LLC
which Mr. Schulhof may be deemed to beneficially own as the principal
membership point holder and the sole manager of OMEGA, LLC. In connection
with that certain Underwriting Agreement dated as of October 1, 1997
between the Company and National Securities Corporation, as the
representative of the several underwriters of the Company's initial public
offering of securities (the "Underwriting Agreement"), Mr. Schulhof has
agreed in his individual capacity and not as an officer or director of the
Company, that for a period of two years after the date of the Underwriting
Agreement, in any stockholder vote other than the election of the
directors of the Company, or security holder proposals presented for the
vote of stockholders in accordance with Rule 14a-8 under the Exchange Act,
he will vote all shares of Common Stock beneficially owned by him
individually or in his capacity as the sole manager of OMEGA, LLC with
authority to vote shares of the Common Stock of the Company held by such
entity, but no other affiliates, in accordance with the vote of a majority
of the holders of Common Stock of the Company which has been registered
under the Securities Act, except if such action, in the opinion of legal
counsel, would not be consistent with his fiduciary duties as a director
or officer or principal stockholder of the Company.
(4) The Company has relied on information reported on a Statement on Schedule
13G/A dated February 9, 1999 filed by Putnam Investments, Inc. with the
Commission.
(5) The Company has relied on information reported on a Statement on Schedule
13G dated February 12, 1998 filed by Dr. Glovsky with the Commission.
Includes 5,000 shares held of record by Dr. Glovsky's Individual
Retirement Account.
(6) The Company has relied on information reported on a Statement on Schedule
13G dated February 12, 1998 filed by The Mayflower Group Ltd. with the
Commission.
(7) Includes 10,000 shares issuable upon the exercise of options held by
Dr. Grove.
(8) Includes 50,000 shares issuable upon the exercise of options held by Dr.
Bellavia. Also includes 8,100 shares held by certain trusts for the
benefit of Dr. Bellavia and 750 shares held by certain trusts for the
benefit of Dr. Bellavia's spouse.
(9) Includes 10,000 shares held of record by Leonard, Mulherin & Greene, P.C.
("LMG"), a public accounting firm that provides accounting services to the
Company and makes Mr. Mulherin available to be the Company's Chief
Financial Officer pursuant to a consulting agreement, and of which Mr.
Mulherin is a principal stockholder. Also includes 150,000 shares issuable
upon the exercise of options held by LMG.
(10) Includes 50,000 shares issuable upon the exercise of options held by Mr.
Elliott.
(11) Includes 10,000 shares issuable upon the exercise of options held by Mr.
Clarke.
(12) See Notes 3, 5, 7, 8, 9, 10 and 11.
Item 12. Certain Relationships and Related Transactions
On August 31, 1996, the Company acquired OMEGA, LLC's orthodontic practice
management business and certain related assets, management contracts and
practice affiliation agreements in exchange for 1,050,000 shares of the
Company's Common Stock. The related assets, contracts and agreements included
certain computer and other office equipment; non-binding letters of intent with
orthodontic practices to affiliate with OMEGA, LLC, four of which were
superseded by affiliation agreements that closed simultaneously with the IPO;
consulting services agreements which provided limited revenues to the Company
pending the closing of the IPO; consulting agreements with Dr. Bellavia and Mr.
Elliott, both of which were superseded by Employment Agreements; and the
consulting agreement (which is described below) with Dr. Glovsky and Mayflower.
Mr. Schulhof and Drs. Glovsky and Bellavia, all of the then directors of the
Company, held 330 (27.7%), 75 (6.3%), 150 (12.6%) and 100 (8.4%) of the
membership points of OMEGA, LLC, respectively, at the time of the transaction,
and Mr. Schulhof was the sole manager of OMEGA, LLC.
In connection with the acquisition by the Company of OMEGA, LLC's
orthodontic practice management business, the Company assumed OMEGA, LLC's
rights and obligations under an agreement with Dr. Glovsky and Mayflower, a
private banking firm, whereby Dr. Glovsky and Mayflower (the "Consultants")
agreed to provide certain consulting services to the Company regarding the
Company's business plan, initial capital structure and private financing and
orthodontic practice affiliation transactions and the identification and
retention of the Company's Board of Directors, senior management team and
professional advisors. Under the terms of the agreement, as amended and
restated, 225,000 shares of the Company's Common Stock were issued to each of
the Consultants to be held in escrow pending fulfillment of their consulting
obligations. Following completion of the consulting services, all of such shares
were released from the escrow on April 28, 1997 at an imputed value of
approximately $4.50 per share and delivered to the Consultants. In addition, the
Company agreed to make cash payments to the Consultants aggregating $842,000
over three years beginning in January 1998. The Company is obligated to make
quarterly payments to each of Dr. Glovsky and Mayflower on January 1, April 1,
June 1 and September 1, 1998, 1999 and 2000 of $67,500, $27,000 and $10,800,
respectively. The Company made payments under this agreement aggregating
$305,000 to Dr. Glovsky and Mayflower during 1998. Mayflower is a stockholder of
the Company and holds 75 membership points of OMEGA, LLC, the Company's
principal stockholder. See "Security Ownership of Certain Beneficial Owners and
Management" under Item 9 hereof.
The Company has entered into another consulting agreement with Dr. Glovsky
which became effective upon the closing of the IPO. The initial term of the
agreement is three years, and Dr. Glovsky provides consulting services to the
Company in connection with identifying orthodontic practices with potential to
affiliate with the Company and negotiating and closing affiliation agreements
with such practices. Dr. Glovsky was paid a monthly advance of $5,000, which
advance was subject to review and reduction in the event that certain
affiliation targets were not met by the Company. The Board of Directors of the
Company determined that such targets had been met during 1997, and no reduction
of Dr. Glovsky's advances was imposed. Beginning in 1998 and thereafter, Dr.
Glovsky's consulting agreement provides for a maximum monthly fee of $5,000. In
1998, the Company paid Dr. Glovsky fees of $60,000 and expects to pay him fees
of approximately $60,000 under this agreement in 1999.
The Company entered into a consulting agreement with LMG which became
effective on May 1, 1997 and provides that LMG shall make Mr. Mulherin, a
principal stockholder of LMG, available to serve as the Company's Chief
Financial Officer. The initial term of the agreement is three years. For the
services of Mr. Mulherin as Chief Financial Officer, LMG was paid a monthly
retainer fee of $5,000 prior to the closing of the IPO and a monthly retainer
fee of $10,000 thereafter and for the term of the agreement. In addition, in
connection with work done by LMG in preparation for and completion of the IPO,
the Company paid LMG fees of $ 148,565 and issued LMG 10,000 shares of
unregistered Common Stock. The Company granted LMG a non-qualified stock option
under the Incentive Stock Plan to acquire 150,000 shares of the Company's Common
Stock at an exercise price of $6.00 per share. The Company has also agreed to
indemnify LMG against certain liabilities that may arise in connection with the
services to be rendered by LMG under the agreement.
During September 1996, Drs. Glovsky and Bellavia, both directors of the
Company and more than 5% owners of OMEGA, LLC, the Company's principal
stockholder, purchased $25,000 and $50,000, respectively, of certain 15% bridge
financing notes issued prior to the IPO (the "Bridge Notes") and received 5,000
and 10,000 shares, respectively, of the Company's Common Stock in connection
therewith. In April, 1997, Dr. Glovsky and Dr. Grove, also a director of the
Company, purchased an additional $5,000 and $25,000 of Bridge Notes,
respectively, and received an additional 1,000 and 5,000 shares of the Common
Stock, respectively, in connection therewith. In October 1997, the Company
repaid all of its Bridge Notes (including interest accrued thereon) from the net
proceeds of the IPO, including the Bridge Notes held by Drs. Glovsky, Bellavia
and Grove.
In June, 1997, Dr. Glovsky and Dr. Grove purchased $25,000 each of certain
16% interim financing notes issued prior to the IPO (the "Interim Notes"), and
Dr. Glovsky subsequently purchased an additional $60,000 of Interim Notes. In
October 1997, the Company repaid all of its Interim Notes (including interest
accrued thereon) from the net proceeds of the IPO, including the Interim Notes
held by Dr. Glovsky and Dr. Grove.
The Company entered into an affiliation agreement with Dr. Grove which the
Company closed concurrently with the closing of the IPO. Pursuant to its
agreement with Dr. Grove, a director of the Company, the Company acquired
certain assets of Dr. Grove's orthodontic practice in exchange for a cash
payment of $333,567 and 129,721 shares of the Company's Common Stock.
In December 1997, the Company loaned Mr. Schulhof $100,000 in exchange for
his promissory note (the "Schulhof Note"). The Schulhof Note is a demand note
which bears interest at the rate of prime (as published in The Wall Street
Journal) plus two percent. Principal and interest are due upon demand, but if
not sooner demanded, then in December 2000.
Effective as of January 1, 1998, the Company and Dr. Bellavia terminated
his Employment Agreement and entered into a consulting agreement. The initial
term of the agreement is three years. Dr. Bellavia will provide services
relating to the design, schedule of installation and follow up on the
effectiveness of all managerial systems used by the Company's affiliated
orthodontic practices and the management of the consultants used by the Company
to optimize and maintain the affiliate practices' programs. Dr. Bellavia is paid
a monthly retainer fee of $10,000, and the Company expects to pay Dr.
Bellavia consulting fees in 1998 of approximately $120,000.
The Company entered into a consulting agreement with Mr. Wexler which
became effective on March 9, 1998 and provides that Mr. Wexler will serve as the
Company's Chief Legal Officer. The initial term of the agreement is three years.
Mr. Wexler is paid a monthly retainer fee of $7,350, and the Company has agreed
to reimburse Mr. Wexler for certain bar association and professional liability
expenses he incurs in connection with his services as Chief Legal Officer of the
Company. The Company granted Mr. Wexler a non-qualified stock option under the
Incentive Stock Plan to acquire 25,000 shares of the Company's Common Stock at
an exercise price of $3.0625 per share. The Company has also agreed to indemnify
Mr. Wexler against certain liabilities that may arise in connection with the
services to be rendered under the agreement and to pay him in a lump sum the
amount that he would be entitled to receive under the agreement in the event
that his employment terminates within six months following a change in control
of the Company.
The Company has adopted a policy to the effect that transactions between
it and its officers, directors, principal stockholders and the affiliates of the
foregoing persons be on terms no less favorable to the Company than could
reasonably be obtained in arms-length transactions with independent third
parties, and that any such transactions also be approved by a majority of the
Company's outside independent directors disinterested in the transaction.
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 August 31, 1996 A
by and between Omega Orthodontics, Inc. and The
Orthodontic Management Effectiveness Group of
America, LLC
2.2 Form of Affiliation Agreement and Agreement and Plan A
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 Plan of A
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 Purchase A
Agreement by and among Omega Orthodontics, Inc. and
Scott E. Feldman, D.D.S.
2.5 Form of Affiliation Agreement and Stock Purchase A
Agreement by and between Omega Orthodontics, Inc.
and Jeff S. Zapalac, D.D.S.
2.6 Form of Affiliation Agreement and Asset Purchase A
Agreement by and between Omega Orthodontics, Inc.
and David T. Grove, D.M.D.
2.7 Affiliation Agreement and Agreement and Plan of A
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 Plan of A
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 Agreement B
by and between Omega Orthodontics, Inc. and Leon J.
Leonard, D.D.S.
2.10 Affiliation Agreement and Asset Purchase Agreement B
by and between Omega Orthodontics, Inc. and David
Longworth, D.D.S.
2.11 Affiliation Agreement and Asset Purchase Agreement B
by and between Omega Orthodontics, Inc. and Rodney
A. Gray, D.D.S.
2.12 Agreement for the Purchase and Sale of Assets by and B
between Sharon M. Crowder, D.D.S., Inc. and Omega
Orthodontics of Reseda, Inc.
2.13 Affiliation Agreement and Agreement and Plan of B
Merger by and among Omega 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 Agreement B
by and among Omega Orthodontics, Inc., Richard H.
Villa, D.D.S. and Richard H. Villa, D.D.S., Inc.
2.15 Affiliation Agreement and Agreement and Plan of B
Merger by and among Omega 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 Plan of B
Merger by and among Omega 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 Agreement B
by and among Omega Orthodontics, Inc., William W.
Beazley, D.D.S. and William W. Beazley, D.D.S., Inc.
2.17 Affiliation Agreement and Asset Purchase Agreement Filed
by and between Omega Orthodontics, Inc. and Dennis Herewith
E. Holt, D.D.S., M.S.
2.18 Asset Purchase Agreement by and among Omega Filed
Orthodontics, Inc., Richard A. Levin, D.D.S. and Herewith
Richard A. Levin, D.D.S. Inc.
2.19 Affiliation Agreement and Stock Purchase Agreement Filed
by and among Omega Orthodontics, Inc., and John F. Herewith
Whitaker, D.D.S.
3.1 Certificate of Incorporation of Omega Orthodontics, A
Inc.
3.2 Certificate of Amendment of Certificate of A
Incorporation of Omega Orthodontics, Inc. filed
February 12, 1997
3.3 By-Laws of Omega Orthodontics, Inc., as amended A
4.1 Specimen Certificate for Common Stock A
4.2 Warrant Agreement by and between Omega Orthodontics, A
Inc. and Continental Stock Transfer & Trust Company,
including form of Warrant
4.3 Representative's Warrant Agreement by and between A
National Securities Corporation and Omega
Orthodontics, Inc., including form of
Representative's Warrant.
10.1 Form of Management Services Agreement by and among a 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 b and among a A
professional corporation to be formed by Dr. Saydyk,
Omega Orthodontics of Colorado Springs, Inc. and
OMEGA Orthodontics, Inc.
10.3 Form of Management Services Agreement by and among a B
professional corporation to be formed by Dr.
Feldman, Omega Orthodontics of Woodland Hills, Inc.
and OMEGA Orthodontics, Inc.
10.4 Form of Management Services Agreement by and among a A
professional corporation to be formed by Dr.
Zapalac, Omega Orthodontics of Austin, Inc. and
OMEGA Orthodontics, Inc.
10.5 Form of Management Services Agreement by and among a A
professional corporation to be formed by Dr. Grove,
Omega Orthodontics of Elko, Inc. and OMEGA
Orthodontics, Inc.
10.6 Form of Management Services Agreement by and among a A
professional corporation to be formed by Dr.
Churosh, Omega Orthodontics of Goodyear, Inc. and
OMEGA Orthodontics, Inc.
10.7 Form of Management Services Agreement by and among a A
professional corporation to be formed by Dr.
Schneekluth, Omega Orthodontics of Huntington Beach,
Inc. and OMEGA Orthodontics, Inc.
10.8 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Schmisseur, Robert
R. Schmisseur, D.D.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Champaign, Inc.
10.9 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Saydyk, Theodore G.
Saydyk, Jr., D.D.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Colorado Springs, Inc.
10.10 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Feldman, Scott E.
Feldman, D.D.S., Omega Orthodontics, Inc. and Omega
Orthodontics of Woodland Hills, Inc.
10.11 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Zapalac, Jeff S.
Zapalac, D.D.S., Inc., Omega Orthodontics, Inc. and
Omega Orthodontics of Austin, Inc.
10.12 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Grove, David T.
Grove, D.M.D., Omega Orthodontics, Inc. and Omega
Orthodontics of Elko, Inc.
10.13 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Churosh, Michael G.
Churosh, D.D.S., Omega Orthodontics, Inc. and Omega
Orthodontics of Goodyear, Inc.
10.14 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Schneekluth, Clark
E. Schneekluth, D.D.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Huntington Beach, Inc.
10.15 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to Robert R. Schmisseur
10.16 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to Theodore G. Saydyk, Jr.
10.17 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to Scott E. Feldman
10.18 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to David T. Grove
10.19 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to Clark E. Schneekluth
10.20 General Assignment and Assumption Agreement dated as A
of August 31, 1997 by and between The Orthodontic
Management Effectiveness Group of America, LLC and
Omega Orthodontics, Inc.
10.21* Employment Agreement by and between Robert J. A
Schulhof and Omega Orthodontics, Inc.
10.22* Employment Agreement by and between F.V. Elliott and A
Omega Orthodontics, Inc.
10.23* Omega Orthodontics Incentive Stock Plan, as amended A
10.24* Subscription Agreement dated as of September 9, 1996 A
and April 28, 1997 by and between Omega
Orthodontics, Inc. and C. Joel Glovsky Rollover IRA
10.25* Subscription Agreement dated as of September 25, A
1996 by and between Omega Orthodontics, Inc. and
Dean C. Bellavia.
10.26* Amended and Restated Consulting Agreement by and A
among Omega Orthodontics, Inc., The Mayflower Group,
Ltd., and C. Joel Glovsky, as amended
10.27* Amendment to the Amended and Restated Consulting B
Agreement by and among Omega Orthodontics, Inc., The
Mayflower Group, Ltd., and C. Joel Glovsky as amended
10.28* Agreement dated as of October 23, 1996 by and A
between Leonard, Mulherin & Greene, P.C. and Omega
Orthodontics, Inc.
10.29* Consulting Agreement by and between C. Joel Glovsky A
and Omega Orthodontics, Inc.
10.30* Consulting Agreement by and between Leonard, A
Mulherin & Greene, P.C. and Omega Orthodontics, Inc.
10.31 Subscription Agreement dated as of April 28, 1997 by A
and between Omega Orthodontics, Inc. and David T.
Grove
10.32 Management Services Agreement by and among Leon J. B
Leonard, D.M.D., P.C., Omega Orthodontics of
Conyers, Inc. and Omega Orthodontics, Inc.
10.33 Stock Put/Call Option and Successor Designation B
Agreement by and among Leon 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 B
Orthodontics, Inc. payable to Leon Leonard
10.35 Management Services Agreement by and among David W. B
Longworth, P.C., Omega Orthodontics of Watertown,
Inc. and Omega Orthodontics, Inc.
10.36 Stock Put/Call Option and Successor Designation B
Agreement by and among David 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 B
Orthodontics, Inc. payable to David W. Longworth
Trust and Jacquelyn L. Longworth Trust
10.38 Management Services Agreement by and among Rodney A. B
Gray, D.D.S., M.S., Ltd., Omega Orthodontics of
Reno, Inc. and Omega Orthodontics, Inc.
10.39 Stock Put/Call Option and Successor Designation B
Agreement by and among Rodney 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 B
Orthodontics, Inc. payable to Rodney A. Gray
10.41 Management Services Agreement by and among Scott E. B
Feldman, D.D.S., M.S., Inc., Omega Orthodontics of
Reseda, Inc. and Omega Orthodontics, Inc.
10.42 Management Services Agreement by and among Richard B
H. Villa, D.M.D., P.C., Omega Orthodontics of
Virginia, Inc. and Omega Orthodontics, Inc.
10.43 Stock Put/Call Option and Successor Designation B
Agreement by and among 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 B
Orthodontics, Inc. payable to Richard H. Villa,
D.M.D.
10.45* Consulting Agreement by and between Dean C. Bellavia B
and Omega Orthodontics, Inc.
10.46 Demand Note dated December 3, 1997 made by Robert J. B
Schulhof in favor of Omega Orthodontics, Inc.
10.47 Management Services Agreement by and among Daniel B
Azani, D.D.S., Inc., Azani Dental Services, Inc. and
Omega Orthodontics, Inc.
10.47a Amendment to Management Services Agreement by and B
among Daniel Azani, D.D.S., Inc., Azani Dental
Services, Inc. and Omega Orthodontics, Inc.
10.48 Stock Put/Call Option and Successor Designation B
Agreement by and among Daniel 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 Successor B
Designation Agreement by and 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 I. Wexler B
and Omega Orthodontics, Inc.
10.50 Non-negotiable Promissory Note from Omega B
Orthodontics, Inc. payable to Daniel Azani, D.D.S.
10.51 Form of Letter of Intent for Management Services by Filed
and between Omega Orthodontics, Inc. and Jack A. Herewith
Hill D.D.S., Inc.
10.52 Management Agreement by and among Omega Filed
Orthodontics, Inc., Omega Orthodontics of Austin, Herewith
Inc., and Jack A. Hill D.D.S., Inc.
10.53 Management Services Agreement by and among Dennis E. Filed
Holt, P.C., Omega Orthodontics of Woodland Hills, Herewith
Inc. and Omega Orthodontics, Inc.
10.54 Stock Put/Call Option and Successor Designation Filed
Agreement by and among Dennis E. Holt, P.C., Dennis Herewith
E. Holt, DDS, M.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Woodland Hills, Inc.
10.55 Management Services Agreement by and among Clark E. Filed
Schneekluth, D.D.S. M.S., Inc., Omega Orthodontics Herewith
of Woodland Hills, Inc., and Omega Orthodontics, Inc.
10.56 Management Services Agreement by and among J.F. Filed
Whitaker, D.D.S. Inc., Omega Orthodontics of Herewith
Woodland Hills, Inc. and Omega Orthodontics, Inc.
10.57 Form of Stock Put/Call Option and Successor Filed
Designation Agreement by and among J.F. Whitaker, Herewith
D.D.S. Inc., John F. Whitaker, D.D.S., Omega
Orthodontics, Inc., and Omega Orthodontics of
Woodland Hills, Inc.
10.58 Stock Put/Call Option and Successor Designation Filed
Agreement by and among Clark E. Schneekluth, D.D.S. Herewith
M.S., Inc., Clark E. Schneekluth, D.D.S., Omega
Orthodontics, Inc., and Omega Orthodontics of
Woodland Hills, Inc.
10.59 Management Services Agreement by and among Rodney Filed
A. Gray, D.D.S., Omega Orthodontics of Reno, Inc., Herewith
and Omega Orthodontics, Inc.
10.60 Form of Non-negotiable Promissory Note from Omega Filed
Orrthodontics, Inc. payable to Dr. John F. Whitaker Herewith
11 Computation of Pro Forma Earnings Per Share Filed
Herewith
21.1 List of Subsidiaries of Omega Orthodontics, Inc. Filed
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).
B Incorporated by reference to the Company's Annual Report for the fiscal
year ended December 31, 1997 on Form 10-KSB.
* 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.
<PAGE>
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
Director, President and March 30, 1999
Chief Executive Officer
/s/ Robert J. Schulhof (Principal Executive Officer)
Robert J. Schulhof
Chief Financial Officer March 30, 1999
/s/ Edward M. Mulherin (Principal Financial and
Edward M. Mulherin Accounting Officer)
Director March 30, 1999
/s/ Dean C. Bellavia
Dean C. Bellavia
Director March 30, 1999
/s/ John C. Clarke, Jr.
John C. Clarke, Jr.
Director March 30, 1999
/s/ Floyd V. Elliott
Floyd V. Elliott
Director March 30, 1999
/s/ C. Joel Glovsky
C. Joel Glovsky
Director March 30, 1999
/s/ David T. Grove
David T. Grove
EXHIBIT INDEX
Exhibit No. Exhibit Description Reference
2.1 Asset Purchase Agreement dated as of August 31, 1996 A
by and between Omega Orthodontics, Inc. and The
Orthodontic Management Effectiveness Group of
America, LLC
2.2 Form of Affiliation Agreement and Agreement and Plan A
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 Plan of A
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 Purchase A
Agreement by and among Omega Orthodontics, Inc. and
Scott E. Feldman, D.D.S.
2.5 Form of Affiliation Agreement and Stock Purchase A
Agreement by and between Omega Orthodontics, Inc.
and Jeff S. Zapalac, D.D.S.
2.6 Form of Affiliation Agreement and Asset Purchase A
Agreement by and between Omega Orthodontics, Inc.
and David T. Grove, D.M.D.
2.7 Affiliation Agreement and Agreement and Plan of A
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 Plan of A
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 Agreement B
by and between Omega Orthodontics, Inc. and Leon J.
Leonard, D.D.S.
2.10 Affiliation Agreement and Asset Purchase Agreement B
by and between Omega Orthodontics, Inc. and David
Longworth, D.D.S.
2.11 Affiliation Agreement and Asset Purchase Agreement B
by and between Omega Orthodontics, Inc. and Rodney
A. Gray, D.D.S.
2.12 Agreement for the Purchase and Sale of Assets by and B
between Sharon M. Crowder, D.D.S., Inc. and Omega
Orthodontics of Reseda, Inc.
2.13 Affiliation Agreement and Agreement and Plan of B
Merger by and among Omega 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 Agreement B
by and among Omega Orthodontics, Inc., Richard H.
Villa, D.D.S. and Richard H. Villa, D.D.S., Inc.
2.15 Affiliation Agreement and Agreement and Plan of B
Merger by and among Omega 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 Plan of B
Merger by and among Omega 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 Agreement B
by and among Omega Orthodontics, Inc., William W.
Beazley, D.D.S. and William W. Beazley, D.D.S., Inc.
2.17 Affiliation Agreement and Asset Purchase Agreement Filed
by and between Omega Orthodontics, Inc. and Dennis Herewith
E. Holt, D.D.S., M.S.
2.18 Asset Purchase Agreement by and among Omega Filed
Orthodontics, Inc., Richard A. Levin, D.D.S. and Herewith
Richard A. Levin, D.D.S. Inc.
2.19 Affiliation Agreement and Stock Purchase Agreement Filed
by and among Omega Orthodontics, Inc., and John F. Herewith
Whitaker, D.D.S.
3.1 Certificate of Incorporation of Omega Orthodontics, A
Inc.
3.2 Certificate of Amendment of Certificate of A
Incorporation of Omega Orthodontics, Inc. filed
February 12, 1997
3.3 By-Laws of Omega Orthodontics, Inc., as amended A
4.1 Specimen Certificate for Common Stock A
4.2 Warrant Agreement by and between Omega Orthodontics, A
Inc. and Continental Stock Transfer & Trust Company,
including form of Warrant
4.3 Representative's Warrant Agreement by and between A
National Securities Corporation and Omega
Orthodontics, Inc., including form of
Representative's Warrant.
10.1 Form of Management Services Agreement by and among a 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 b and among a A
professional corporation to be formed by Dr. Saydyk,
Omega Orthodontics of Colorado Springs, Inc. and
OMEGA Orthodontics, Inc.
10.3 Form of Management Services Agreement by and among a B
professional corporation to be formed by Dr.
Feldman, Omega Orthodontics of Woodland Hills, Inc.
and OMEGA Orthodontics, Inc.
10.4 Form of Management Services Agreement by and among a A
professional corporation to be formed by Dr.
Zapalac, Omega Orthodontics of Austin, Inc. and
OMEGA Orthodontics, Inc.
10.5 Form of Management Services Agreement by and among a A
professional corporation to be formed by Dr. Grove,
Omega Orthodontics of Elko, Inc. and OMEGA
Orthodontics, Inc.
10.6 Form of Management Services Agreement by and among a A
professional corporation to be formed by Dr.
Churosh, Omega Orthodontics of Goodyear, Inc. and
OMEGA Orthodontics, Inc.
10.7 Form of Management Services Agreement by and among a A
professional corporation to be formed by Dr.
Schneekluth, Omega Orthodontics of Huntington Beach,
Inc. and OMEGA Orthodontics, Inc.
10.8 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Schmisseur, Robert
R. Schmisseur, D.D.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Champaign, Inc.
10.9 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Saydyk, Theodore G.
Saydyk, Jr., D.D.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Colorado Springs, Inc.
10.10 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Feldman, Scott E.
Feldman, D.D.S., Omega Orthodontics, Inc. and Omega
Orthodontics of Woodland Hills, Inc.
10.11 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Zapalac, Jeff S.
Zapalac, D.D.S., Inc., Omega Orthodontics, Inc. and
Omega Orthodontics of Austin, Inc.
10.12 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Grove, David T.
Grove, D.M.D., Omega Orthodontics, Inc. and Omega
Orthodontics of Elko, Inc.
10.13 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Churosh, Michael G.
Churosh, D.D.S., Omega Orthodontics, Inc. and Omega
Orthodontics of Goodyear, Inc.
10.14 Form of Stock Put/Call Option and Successor A
Designation Agreement by and among a professional
corporation to be formed by Dr. Schneekluth, Clark
E. Schneekluth, D.D.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Huntington Beach, Inc.
10.15 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to Robert R. Schmisseur
10.16 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to Theodore G. Saydyk, Jr.
10.17 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to Scott E. Feldman
10.18 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to David T. Grove
10.19 Form of Non-negotiable Promissory Note from Omega A
Orthodontics, Inc. payable to Clark E. Schneekluth
10.20 General Assignment and Assumption Agreement dated as A
of August 31, 1997 by and between The Orthodontic
Management Effectiveness Group of America, LLC and
Omega Orthodontics, Inc.
10.21* Employment Agreement by and between Robert J. A
Schulhof and Omega Orthodontics, Inc.
10.22* Employment Agreement by and between F.V. Elliott and A
Omega Orthodontics, Inc.
10.23* Omega Orthodontics Incentive Stock Plan, as amended A
10.24* Subscription Agreement dated as of September 9, 1996 A
and April 28, 1997 by and between Omega
Orthodontics, Inc. and C. Joel Glovsky Rollover IRA
10.25* Subscription Agreement dated as of September 25, A
1996 by and between Omega Orthodontics, Inc. and
Dean C. Bellavia.
10.26* Amended and Restated Consulting Agreement by and A
among Omega Orthodontics, Inc., The Mayflower Group,
Ltd., and C. Joel Glovsky, as amended
10.27* Amendment to the Amended and Restated Consulting B
Agreement by and among Omega Orthodontics, Inc., The
Mayflower Group, Ltd., and C. Joel Glovsky as amended
10.28* Agreement dated as of October 23, 1996 by and A
between Leonard, Mulherin & Greene, P.C. and Omega
Orthodontics, Inc.
10.29* Consulting Agreement by and between C. Joel Glovsky A
and Omega Orthodontics, Inc.
10.30* Consulting Agreement by and between Leonard, A
Mulherin & Greene, P.C. and Omega Orthodontics, Inc.
10.31 Subscription Agreement dated as of April 28, 1997 by A
and between Omega Orthodontics, Inc. and David T.
Grove
10.32 Management Services Agreement by and among Leon J. B
Leonard, D.M.D., P.C., Omega Orthodontics of
Conyers, Inc. and Omega Orthodontics, Inc.
10.33 Stock Put/Call Option and Successor Designation B
Agreement by and among Leon 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 B
Orthodontics, Inc. payable to Leon Leonard
10.35 Management Services Agreement by and among David W. B
Longworth, P.C., Omega Orthodontics of Watertown,
Inc. and Omega Orthodontics, Inc.
10.36 Stock Put/Call Option and Successor Designation B
Agreement by and among David 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 B
Orthodontics, Inc. payable to David W. Longworth
Trust and Jacquelyn L. Longworth Trust
10.38 Management Services Agreement by and among Rodney A. B
Gray, D.D.S., M.S., Ltd., Omega Orthodontics of
Reno, Inc. and Omega Orthodontics, Inc.
10.39 Stock Put/Call Option and Successor Designation B
Agreement by and among Rodney 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 B
Orthodontics, Inc. payable to Rodney A. Gray
10.41 Management Services Agreement by and among Scott E. B
Feldman, D.D.S., M.S., Inc., Omega Orthodontics of
Reseda, Inc. and Omega Orthodontics, Inc.
10.42 Management Services Agreement by and among Richard B
H. Villa, D.M.D., P.C., Omega Orthodontics of
Virginia, Inc. and Omega Orthodontics, Inc.
10.43 Stock Put/Call Option and Successor Designation B
Agreement by and among 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 B
Orthodontics, Inc. payable to Richard H. Villa,
D.M.D.
10.45* Consulting Agreement by and between Dean C. Bellavia B
and Omega Orthodontics, Inc.
10.46 Demand Note dated December 3, 1997 made by Robert J. B
Schulhof in favor of Omega Orthodontics, Inc.
10.47 Management Services Agreement by and among Daniel B
Azani, D.D.S., Inc., Azani Dental Services, Inc. and
Omega Orthodontics, Inc.
10.47a Amendment to Management Services Agreement by and B
among Daniel Azani, D.D.S., Inc., Azani Dental
Services, Inc. and Omega Orthodontics, Inc.
10.48 Stock Put/Call Option and Successor Designation B
Agreement by and among Daniel 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 Successor B
Designation Agreement by and 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 I. Wexler B
and Omega Orthodontics, Inc.
10.50 Non-negotiable Promissory Note from Omega B
Orthodontics, Inc. payable to Daniel Azani, D.D.S.
10.51 Form of Letter of Intent for Management Services by Filed
and between Omega Orthodontics, Inc. and Jack A. Herewith
Hill D.D.S., Inc.
10.52 Management Agreement by and among Omega Filed
Orthodontics, Inc., Omega Orthodontics of Austin, Herewith
Inc., and Jack A. Hill D.D.S., Inc.
10.53 Management Services Agreement by and among Dennis E. Filed
Holt, P.C., Omega Orthodontics of Woodland Hills, Herewith
Inc. and Omega Orthodontics, Inc.
10.54 Stock Put/Call Option and Successor Designation Filed
Agreement by and among Dennis E. Holt, P.C., Dennis Herewith
E. Holt, DDS, M.S., Omega Orthodontics, Inc. and
Omega Orthodontics of Woodland Hills, Inc.
10.55 Management Services Agreement by and among Clark E. Filed
Schneekluth, D.D.S. M.S., Inc., Omega Orthodontics Herewith
of Woodland Hills, Inc., and Omega Orthodontics, Inc.
10.56 Management Services Agreement by and among J.F. Filed
Whitaker, D.D.S. Inc., Omega Orthodontics of Herewith
Woodland Hills, Inc. and Omega Orthodontics, Inc.
10.57 Form of Stock Put/Call Option and Successor Filed
Designation Agreement by and among J.F. Whitaker, Herewith
D.D.S. Inc., John F. Whitaker, D.D.S., Omega
Orthodontics, Inc., and Omega Orthodontics of
Woodland Hills, Inc.
10.58 Stock Put/Call Option and Successor Designation Filed
Agreement by and among Clark E. Schneekluth, D.D.S. Herewith
M.S., Inc., Clark E. Schneekluth, D.D.S., Omega
Orthodontics, Inc., and Omega Orthodontics of
Woodland Hills, Inc.
10.59 Management Services Agreement by and among Rodney Filed
A. Gray, D.D.S., Omega Orthodontics of Reno, Inc., Herewith
and Omega Orthodontics, Inc.
10.60 Form of Non-negotiable Promissory Note from Omega Filed
Orrthodontics, Inc. payable to Dr. John F. Whitaker Herewith
11 Computation of Pro Forma Earnings Per Share Filed
Herewith
21.1 List of Subsidiaries of Omega Orthodontics, Inc. Filed
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).
B Incorporated by reference to the Company's Annual Report for the fiscal
year ended December 31, 1997 on Form 10-KSB.
* 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.
AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT
THIS AFFILIATION AGREEMENT AND ASSET PURCHASE AGREEMENT is entered into as of
the 1st day of August, 1998, by and between Omega Orthodontics, Inc., a Delaware
corporation ("OMEGA" or "Surviving Entity"), and Dennis E. Holt, D.D.S., M.S.
("Dr. Holt"), who is duly licensed to practice endodontics in the state of
Oregon (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. Holt owns and operates an endodontic practice (the "Endodontic Practice")
with offices located at 1590 N.E. Williamson Boulevard, Bend, Oregon 97701 (the
"Endodontic Offices") and furnishes endodontic care to the general public. As
the owner and operator of the Endodontic Practice, Dr. Holt 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. Holt. Dr. Holt 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. Holt
have determined that it is in the best interests of each for OMEGA to purchase
from Dr. Holt 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. Holt agrees to sell, transfer, convey,
assign and deliver to OMEGA, and OMEGA agrees to purchase and acquire from Dr.
Holt and take delivery of, for the consideration hereinafter provided, all of
Dr. Holt'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. Holt 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. Holt to any other person relating to Endodontic
Practice;
(5) any rights of Dr. Holt 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, excepting those assets listed on
Schedule 1 and further excepting those rights and obligations that
cannot legally or ethically be held by anyone other than a licensed
dentist or endodontist under applicable laws or ethical rules;
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 Fifty Five Thousand Four Hundred Forty One Dollars
($255,441) in cash (the "Cash Component");
(ii) Two Hundred Ninety Three Thousand Three Hundred Thirty Five
Dollars ($293,335) to be represented by a promissory note (the
"Purchase Note") payable to Dr. Holt (the "Note Component") in the form
attached hereto as Exhibit B; and
(iii) Two Hundred Ninety Three Thousand Three Hundred Thirty Five
Dollars ($293,335) to be represented by issuance to Dr. Holt of shares
of unregistered 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 any legal holidays) of the calendar week
ending the Friday immediately preceding the effective date of this
Agreement and the Management Services Agreement between Dr. Holt and
OMEGA) the Closing (the "Stock Component"), which shall thereupon be
issued to Dr. Holt, 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 gross income 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 1:00pm EDT on May 1, 1998
at such place, as may be fixed by mutual agreement of the parties.
1.4 Delivery of Records, Contracts; Transfer of Accounts. At the Closing, Dr.
Holt 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. Holt (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. Holt shall cooperate with OMEGA in the transfer of
any utility accounts for the Endodontic Offices.
<PAGE>
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. Holt shall assign and transfer to OMEGA all of
Dr. Holt'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.
Holt 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. Holt 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. Holt shall assign to
OMEGA, and OMEGA shall assume and pay, perform and discharge, and indemnify and
hold Dr. Holt harmless from and against, the following obligations and
liabilities of Dr. Holt, and none other (collectively, the "Assumed
Liabilities"): all obligations and liabilities on the part of Dr. Holt 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.
Holt. OMEGA agrees to indemnify, defend and hold Dr. Holt 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. Holt intend that OMEGA shall not
assume or be obligated to pay, perform or discharge any of Dr. Holt'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. Holt
expressly agree OMEGA is acquiring the Assets free and clear of all liens,
claims and encumbrances.
<PAGE>
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Holt 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. HOLT
Dr. Holt 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. Holt to
suffer the revocation, suspension or limitation of Dr. Holt'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 used his best
efforts to obtain all assignments, authorizations, consents and permits of
others required to permit the consummation by Dr. Holt of the transactions
contemplated by this Agreement. In the event any necessary authorizations have
not been received, Dr. Holt shall inform Omega thereof and the parties shall
meet and mutually resolve such issues.
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. Holt 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.
5.3 Breach of Representations and Warranties. Promptly upon becoming aware of
the actual, impending or threatened occurrence of any event which would cause or
constitute a breach, or would have caused or constituted a breach had such event
occurred or been known to them prior to the date hereof, of any of their
representations and warranties contained in or referred to in this Agreement,
OMEGA shall give detailed written notice thereof to and shall use his best
efforts to prevent or promptly remedy the same.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA
The obligations of OMEGA to consummate this Agreement and the transactions
contemplated hereby are subject to the condition that on or before the Closing
the actions required by this Article VI will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations and
warranties of Dr. Holt contained in Schedule 1 shall be true and correct as
though made on and as of the Closing, and Dr. Holt 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. Holt 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. Holt 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. Holt 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. Holt 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. Holt 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. Holt 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. Holt
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. Holt 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. HOLT
The obligations of Dr. Holt 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. Holt 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. Holt is
likely to result in the restraint or prohibition of the consummation of any
material transaction contemplated hereby.
7.6 Financial Condition. The financial condition of OMEGA shall not be
materially adversely different from the Financial Statement (10-K) filed by
OMEGA with the SEC. During the period from the date of the Financial Statement
(10-K) to the Closing, there shall not have been any material adverse change in
the financial condition, results of operations, business or prospects of OMEGA,
nor any material loss or damage to the Assets, whether or not insured, which
materially affects the ability of OMEGA to conduct its business.
ARTICLE VIII. OBLIGATIONS AFTER CLOSING.
8.1 OMEGA Exceptional Practice and the Report Suggestions.
On and after the Closing, Dr. Holt 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. Holt, his accountants and
attorneys, reasonable access to such books and records for the purpose of
preparing such tax returns of Dr. Holt and the Endodontic Practice as may be
reasonably requested after the Closing and for other proper purposes reasonably
approved by OMEGA.
8.3 License. Dr. Holt shall maintain all licenses necessary to practice
endodontics in the State. Dr. Holt shall not commit or fail to commit any act
which would cause Dr. Holt or the New PC to suffer the revocation, suspension or
limitation of Dr. Holt's or the New PC's license.
8.4 OMEGA hereby grants to Dr. Holt appropriate "piggyback" registration rights
so that in the event OMEGA registers any previously unregistered OMEGA stock
OMEGA shall cause any unregistered stock held by Dr. Holt to be similarly
registered.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Holt. Subject to the limitations set forth in Section
9.3, Dr. Holt 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. Holt 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. Holt 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. Holt 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 Oregon 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. Holt.
9.6 Notwithstanding anything to the contrary contained in this Agreement, or any
Schedule or Exhibit hereto, in no event shall Dr. Holt, the New PC, OMEGA, the
MSO its officers, directors or employees be liable for any form of indirect,
special, incidental or consequential damages, whether such damages arise in
contract or tort, irrespective of fault, negligence or strict liability.
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. Holt 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. Holt, to:
Dennis E. Holt, D.D.S., M.S.
1590 N.E. Williamson Boulevard
Bend, Oregon 97701
CC:
Kevin J. Keillor
747 SW Industrial Way
Bend, Oregon 97702
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 Oregon 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. Holt.
10.10 Further Assurances. Following the execution of this Agreement, Dr. Holt
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.
D.D.S., M.S.
Printed Name: Dennis E. Holt, D.D.S., M.S.
OMEGA ORTHODONTICS, INC.
By:
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
Duly Authorized
<PAGE>
Exhibit A
Financial Statement
[DR. HOLT PROVIDE]
<PAGE>
Exhibit B
NON-NEGOTIABLE PROMISSORY NOTE
$180,000 Acton, California
_________ ___, 1998
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware corporation
("Omega"), promises to pay to Dr. Dennis E. Holt ("Dr. Holt") at 1590 N.E.
Williamson Boulevard, Bend, Oregon 97701 or other location specified by Dr. Holt
in writing, One Hundred Eighty Thousand Dollars ($180,000) 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. Holt, 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. Holt.
5. Expenses. Omega agrees to pay all expenses, including reasonable
attorney's fees, which Dr. Holt may incur in effecting collection of this Note
upon default or at maturity.
6. Delays. Dr. Holt 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. Holt. 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.
Holt 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. Holt in writing.
10. Governing Law. This Note shall be deemed to be a Oregon instrument, and
all rights and obligations hereunder shall be governed by the laws of the State
of Oregon
INTENTIONALLY LEFT BLANK
<PAGE>
This instrument has been duly executed by an officer of Omega duly
authorized, and shall take effect upon the date and year first above written.
WITNESS: OMEGA ORTHODONTICS, INC.
________________________ By:_________________________
Robert J. Schulhof,
President
<PAGE>
Exhibit C
Notice
__________________, 1998
[Name and address
of Patient/Account Debtor/Third Party Payors/Others]
Re: Dr. Dennis E. Holt, D.D.S., M.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 Dennis E. Holt, D.D.S.,
M.S. and [Insert Name of 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,
- ---------------------------
Dennis E. Holt, D.D.S., M.S.
[Insert Name of New PC]
By _________________________
Dennis E. Holt, D.D.S., M.S.
President
<PAGE>
Exhibit D
BILL OF SALE AND ASSIGNMENT
The undersigned, Dennis E. Holt, D.D.S., M.S. ("Dr. Holt") 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. Holt (the "Endodontic
Practice") at 1590 N.E. Williamson Boulevard, Bend, Oregon 97701, wheresoever
situated and whether or not specifically referred to herein (such assets and
rights of Dr. Holt 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 1590 N.E. Williamson Boulevard, Bend, Oregon 97701 (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. Holt to any other person relating to the Endodontic Practice;
(e) any rights of Dr. Holt 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, excepting those assets listed on Schedule 1
and further excepting those rights and obligations that cannot legally or
ethically be held by anyone other than a licensed dentist or endodontist under
applicable laws or ethical rules.
Dr. Holt 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. Holt harmless from and against, the following obligations and
liabilities of Dr. Holt, 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. Holt.
OMEGA agrees to indemnify, defend and hold Dr. Holt 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. Holt intend that OMEGA shall not assume or be obligated
to pay, perform or discharge any of Dr. Holt's obligations other than the
Assumed Liabilities. Except for the Assumed Liabilities, OMEGA and Dr. Holt
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. Holt and OMEGA dated as of __________ ___, 1998.
WITNESS the execution under seal as of this ____ day of _________,
1998.
---------------------------
Dennis E. Holt, D.D.S., M.S.
<PAGE>
Schedule I
Excluded Assets
1. Don Zylius Watercolors and Prints
2. Antique Lenzkirch Clock
3. Personal Property of Non-Dental Nature
<PAGE>
Exhibit Y
List of Contracts
1. Loan for Dental Equipment
a. #50049326 (Bank of the Cascades) 80,000
(Balance May 5, 1998) 41,070
(Balance May 5, 1998) 25,000 new loan*
Total 66,070
2. Lease of Diginal X-ray
a. #9702530-701
b. #9702530-702
Affiliated Capital Corp.
707 Skokie Blvd.
Northbrook, Ill. 60062
3. Yellow Pages 40/mo.
4. Laundry 200/mo.
5. Janitorial (Dawn Spencer) 340/mo.
6. Seasonal Expenditures
a. Snowplowing (Jack Fields) variable
b. High Desert Landscaping 200/300 mo.
7. Postage Meter Rental 250/yr.
8. East Cascade Security System 250/yr.
9. Building Insurance 1747/yr.
A. DBC (Dentists Benefits Corp)
B. DBC (overhead) 460/yr.
10. U.S. Satellite Broadcasting 848/yr.
11. Lease for Office Building at 1590 N.E. Williamson Blvd., Bend, OR
* Currently held in account to pay for Dell Computer, Professional Business
Systems software, painting, rock work and roof repair.
<PAGE>
Exhibit E
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
Executed copies of even date herewith have been delivered to the parties.
<PAGE>
Schedule 1
Representations and Warranties of
Dr. Holt to OMEGA
Dr. Holt hereby represents and warrants to OMEGA as follows:
1. The Endodontic Practice. The Assets of the Endodontic Practice are owned
100% by Dr. Holt. Dr. Holt 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.
Holt to authorize the execution of this Agreement by Dr. Holt, and the delivery
and performance of this Agreement and the transactions contemplated hereby, and
this Agreement is the valid and binding obligation of Dr. Holt, enforceable
against Dr. Holt 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. Holt 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. Holt 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. Holt, 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. Holt 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. Holt 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. Holt, 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. Holt do not require the consent, waiver, approval,
authorization, exemption of or giving of notice to any governmental authority.
5. Investigations and Licenses.
(a) Dr. Holt has all necessary licenses to practice endodontics in the
State.
(b) Dr. Holt is not subject to any investigation, whether threatened,
current or pending, under which Dr. Holt may be required to forfeit or suffer
the revocation, suspension or limitation of Dr. Holt's license to practice
endodontics and Dr. Holt 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.
Holt, 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. Holt has good
and marketable title 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. Holt 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. Holt 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.
Holt 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, to the best knowledge of Dr.
Holt, Dr. Holt 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. To the best knowledge of
Dr. Holt 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. Holt 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. Holt 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. Holt
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. Holt, threatened against the Endodontic Practice or Dr. Holt,
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. Holt, threatened
against or involving Dr. Holt or the Endodontic Practice, and to the best the
knowledge of Dr. Holt, 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. Holt 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. Holt or the
Endodontic Practice.
12. Insurance. Dr. Holt has possessed occurrence professional liability
coverage for the five (5) years prior to the date of this Agreement protecting
the Endodontic Practice and Dr. Holt from any professional malpractice liability
that might arise because of the Endodontic Practice's or Dr. Holt'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. Holt and the New PC. The
Endodontic Practice possesses adequate insurance coverage for its Property.
<PAGE>
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Holt to
OMEGA
DR. HOLT AND COUNSEL PROVIDE, IF ANY
None.
<PAGE>
Schedule 2
Representations and Warranties of
OMEGA to Dr. Holt
OMEGA hereby represents and warrants to Dr. Holt 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.
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 OMEGA 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 OMEGA is a party or by which its Assets are bound; or (iii) result in a
violation of any law, regulation, administrative order or judicial order
applicable to OMEGA.
5. Financial Statement. Attached as Exhibit AA to the Agreement is the
Financial Statement (10-K) of OMEGA. To the best knowledge of OMEGA, the
Financial Statement is complete and correct and fairly presents in all material
respects the financial position of OMEGA 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.
6. Absence of Undisclosed Liabilities and Changes. Except as disclosed in
Exhibit X to this Schedule, since the date of the Financial Statement (10-K)
there has not been any change in the financial condition, properties, assets,
liabilities, business or operations of OMEGA, 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 OMEGA;
7. 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 OMEGA, threatened against OMEGA, 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 OMEGA, threatened against or involving OMEGA, and there is no
basis for any of the foregoing, and there are no outstanding court orders, court
decrees, or court stipulations to which OMEGA 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 OMEGA.
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into as of the 14th day of August,
1998, by and among Omega Orthodontics, Inc., a Delaware corporation ("OMEGA")
and Richard A. Levin, D.D.S., ("Dr. Levin"), who is duly licensed to practice
orthodontics in the States of California and New Mexico (the "States") and
Richard A. Levin, D.D.S., Inc., a California professional corporation (the
"PC").
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. Levin owns all of the issued and outstanding shares of the PC.
C. Dr. Levin owns and operates an orthodontic practice (the "Orthodontic
Practice") with offices located at 5251 and 5253 Lampson Ave, Garden Grove,
California (the "Orthodontic Offices") and furnishes orthodontic care to the
general public. As the owner and operator of the Orthodontic Practice, Dr. Levin
is 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.
D. Subject to the terms and conditions of this Agreement, OMEGA, the PC and Dr.
Levin have determined that it is in the best interests of each for OMEGA to
purchase from Dr. Levin certain of the assets comprising the Orthodontic
Practice as provided in Section 1.1 hereof.
E. Pursuant to the terms of an asset purchase agreement executed on even date
herewith, Dr. Levin shall sell the professional elements of the Orthodontic
Practice to a professional Corporation Owned by Dr. Clark Schneekluth of
Huntington Beach, CA, "Dr. Schneekluth") who owns and operates an orthodontic
practice in Huntington Beach, and who is under a management agreement with an
affiliate of OMEGA.
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.
At the Closing (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:
(1) 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, located at the
Orthodontic Offices, or to the Orthodontic Practice conducted therein,
located at the Orthodontic Offices;
(2) all Contracts (as defined below in Section 2.1);
(3) all prepaid claims, prepaid taxes and other prepaid expense items
and deferred charges, credits, advance payments, security and other
deposits made by Dr. Levin to any other person relating to Orthodontic
Practice;
(4) any rights of Dr. Levin pertaining to any counterclaims, set-offs
or defenses he may have with respect to any of the liabilities assumed
by OMEGA; and
(5) any other rights related in any way whatsoever to the Orthodontic
Practice or the Orthodontic Offices, excepting those assets listed on
Schedule 1 and further excepting those rights and obligations that
cannot legally or ethically be held by anyone other than a licensed
dentist or orthodontist under applicable laws or ethical rules;
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 Three Hundred Twenty Nine Thousand
Dollars ($329,00) in cash (the "Cash Component"). Additionally, as part of the
consideration for this transaction, Dr. Levin shall enter into a non-competition
agreement with OMEGA and Dr. Schneekluth under the terms and conditions set
forth in Exhibit E. hereof, and for which $250,000 dollars shall be allocated;
and the PC shall enter into a professional consulting agreement with Dr.
Schneekluth under the terms and conditions set forth in Exhibit "___" hereof,
which among other terms shall require fixed minimum compensation of Eighteen
Thousand Dollars ($18,000) of which Twelve Thousand Dollars ($12,000) shall be
paid to the PC at closing.
1.2 Adjustment; Allocation.
(a) 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 gross income of the Orthodontic Practice using the last twelve
months prior to the end of the month immediately preceding the Closing.
(b) 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 at 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 Richard M. Blumenthal, Esq., 5 Park
Plaza, Suite 800, Irvine, California on or before August 15, 1998, or at such
other place, date or time as may be fixed by mutual agreement of the parties.
1.4 Delivery of Records, Contracts; Transfer of Accounts.
At the Closing, Dr. Levin and the PC 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 naming Dr. Levin (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. Levin shall cooperate with OMEGA in the transfer of
any utility accounts for the Orthodontic Offices, so long as Dr. Levin
is reimbursed for any costs incurred as a direct result of such
cooperation.
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
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. Levin and the PC shall assign and transfer to
OMEGA all of Dr. Levin'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. Levin and the PC 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. Levin, 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. OMEGA
shall reimburse Dr. Levin for such costs incurred as a direct result of
obtaining the aforementioned consents. There shall be no adjustment to the
purchase price for the Assets due to the inability to have any Contract
assigned.
2.3 Assumption of Liabilities by OMEGA. At the Closing, Dr. Levin and the PC
shall assign to OMEGA, and OMEGA shall assume and pay, perform and discharge the
obligations and liabilities on the part of Dr. Levin and the PC under the
Contracts arising on and after the Closing and no other liabilities or
obligations (collectively, the "Assumed Liabilities").
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.
Levin or the PC.
2.5 No Other Liabilities Assumed. OMEGA, the PC and Dr. Levin intend that OMEGA
shall not assume or be obligated to pay, perform or discharge any of the PC's or
Dr. Levin'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.
Levin 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. Levin 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 IV. COVENANTS OF DR. LEVIN
Dr. Levin and the PC hereby covenants and agree with OMEGA as follows:
4.1 Conduct of Business. Between the date of this Agreement and the Closing, Dr.
Levin will do the following unless OMEGA shall otherwise consent in writing:
(a) conduct the PC's 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 six percent (6%) 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. Levin to
suffer the revocation, suspension or limitation of Dr. Levin's license;
and
(i) permit OMEGA and its authorized representatives to have full access
to all properties, assets, records, PC tax returns, records, contracts
and documents which pertain to the orthodontic practice 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, Dr. Levin will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by the PC and Dr. Levin of the transactions
contemplated by this Agreement. In the event any necessary authorizations have
not been received, Dr. Levin shall inform Omega thereof and the parties shall
meet and mutually resolve such issues.
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,
Dr. Levin and the PC shall give detailed written notice thereof to OMEGA to and
shall use his best efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Dr. Levin and the PC shall use their 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. Levin 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.
5.3 Breach of Representations and Warranties. Promptly upon becoming aware of
the actual, impending or threatened occurrence of any event which would cause or
constitute a breach, of would been known to it prior to the date hereof, of any
of its representations and warranties contained in or referred to in this
Agreement, OMEGA shall give detailed written notice thereof to Dr. Levin and the
PC and shall use its best efforts to prevent or promptly remedy the same.
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF OMEGA
The obligations of OMEGA to consummate this Agreement and the transactions
contemplated hereby are subject to the condition that on or before the Closing
the actions required by this Article VI will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations and
warranties of the PC and Dr. Levin contained in Schedule 1 shall be true and
correct as though made on and as of the Closing, and the PC and Dr. Levin shall
have performed all of his obligations hereunder which by the terms hereof are to
be performed on or before the Closing.
6.2 PC. Dr. Levin shall have furnished to OMEGA (i) a certificate of the State
Secretary of State as to the legal existence and professional corporation good
standing of the PC; and (ii) a copy of the resolutions adopted by the board of
directors and stockholders of PC authorizing and approving the sale of the PC.
6.3 Non-competition Agreement. Dr. Levin shall have executed the non-competition
agreement attached 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. Levin shall, at OMEGA's and Dr. Schneekluth's request and
expense, notify all patients and obligors of the 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 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. Levin shall have delivered to OMEGA a certificate,
dated as of 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 the PC 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. Levin
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 the PC 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. LEVIN
The obligations of Dr. Levin 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.
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 Non-competition Agreement. OMEGA and Dr. Schneekluth's professional
Corporation shall have executed the non-competition agreement attached as
Exhibit "E"
7.3 Professional Consulting Agreement. Dr. Schneekluth's professional
corporation shall have executed the Professional Consulting Agreement attached
hereto as Exhibit "___"
7.4 Escrow. Dr. Schneekluth and Dr. Levin shall have concurrently closed escrow
at Hallmark Escrow, Mission Viejo, California, Escrow No. 10028, whereby Dr.
Schneekluth shall purchase a vendee's interest in real property owned by Dr.
Levin, and his spouse, which real property comprises the Orthodontic Offices.
7.5 Professional Practice Assets. Dr. Schneekluth's professional corporation
shall have executed all documents, including the professional practice asset
purchase agreement attached hereto as Exhibit "__" and paid all agreed
consideration to the PC in order to concurrently purchase all professional
practice assets of Dr. Levin and the PC as described therein.
7.6 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 the PC and
Dr. Levin 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 [INTENTIONALLY OMITTED]
8.2 Books and Records. OMEGA shall permit Dr. Levin, his accountants and
attorneys, reasonable access to such books and records for the purpose of
preparing such tax returns of the PC, Dr. Levin and the Orthodontic Practice as
may be reasonably requested after the Closing and for other proper purposes
reasonably approved by OMEGA.
8.3 License. Dr. Levin shall maintain all licenses necessary to practice
orthodontics in the State of California until August 14, 1999. Dr. Levin shall
not commit or fail to commit any act which would cause Dr. Levin or the PC to
suffer the revocation, suspension or limitation of Dr. Levin's or the PC's
license prior to August 14, 1999.
ARTICLE IX. INDEMNIFICATION
9.1 Indemnification By Dr. Levin and the PC. Subject to the limitations set
forth in Section 9.3, Dr. Levin 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. Levin 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 the PC and Dr. Levin harmless
from and against such damages, liabilities, losses and expenses of which may be
sustained or suffered by the PC or Dr. Levin 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 Notwithstanding anything to the contrary contained in this Agreement, or any
Schedule or Exhibit hereto, in no event OMEGA, its officers, directors or
employees, or Dr. Levin, or the PC of any of their respective heirs, successors,
assignees, personal representatives, directors officers, shareholders, agents or
employees, be liable for any form of indirect, special, incidental or
consequential damages, whether such damages arise in contract or tort,
irrespective of fault, negligence or strict liability.
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. Levin 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. Levin, to:
Dr. Richard A. Levin
19276 Seabrook Ave.
Huntington Beach, CA 92648
With a copy to: Richard Blumenthal, Esq.
5 Park Plaza, Suite 800
Irvine, CA 92614
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) constitutes 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 California and, together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such state. Subject to Section 10.12 below, the parties agree to
submit to the jurisdiction of any state or federal court located in Orange
County, California. 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. Levin.
10.10 Further Assurances. Following the execution of this Agreement, Dr. Levin
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.
10.12 Arbitration. In the event of any dispute arising out of, related to or
collateral with this Agreement, said dispute shall be submitted to the American
Arbitration Association for mandatory, binding arbitration in Orange County,
California, pursuant to the rules of the American Arbitration Association
("AAA") then in effect for the resolution of commercial disputes. Only one
arbitrator shall be appointed pursuant to said rules. Administrative costs and
expenses of the arbitration shall be shared equally by Omega and Dr. Levin. The
parties shall be entitled to conduct discovery in accordance with the AAA rules
then in effect. The arbitrator shall, in rendering an award, consider and apply
California Law. The decision of the arbitrator shall be final and binding. The
arbitrator shall have the authority to award attorney fees and costs of
arbitration to the prevailing party. However, the arbitrator shall be bound by
the terms and conditions of this agreement and shall not be entitled to award
any form of indirect, special or consequential damages of any kind. Should any
litigation be commenced between the parties to compel arbitration (including
proceedings in trial and appellate courts) or to confirm an award of the
arbitrator (including proceedings in trial and appellate courts) or for any
other reason related to this Agreement, the party prevailing in such litigation
shall be entitled to attorneys' fees and court costs incurred in connection with
such litigation.
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
as of the date set forth above by their duly authorized representatives.
RICHARD A. LEVIN D.D.S. INC.,
By: Richard A. Levin, D.D.S., President
By:___________________________
Nancy M. Levin, Secretary
RICHARD A. LEVIN D.D.S.
By:___________________________
Richard A. Levin, D.D.S.
OMEGA ORTHODONTICS, INC.
By:___________________________
Printed Name: Robert J. Schulhof
Its President and Chief Executive Officer
OMEGA ORTHODONTICS, INC.
By:___________________________
Printed Name: Edward M. Mulherin
Chief Financial Officer
<PAGE>
Exhibit A
Financial Statement
[DR. LEVIN PROVIDE]
<PAGE>
Exhibit C
Notice
<PAGE>
Exhibit D
BILL OF SALE AND ASSIGNMENT
The undersigned, Richard A. Levin, D.D.S., ("Dr. Levin") and Richard A.
Levin, Inc., a California Professional Corporation ("PC") 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 and its right, title and interest in and to all
of the assets of the orthodontic practice operated by Dr. Levin and the PC (the
"Orthodontic Practice") at 5251 and 5253 Lampson Ave, Garden Grove, California,
wheresoever situated and whether or not specifically referred to herein (such
assets and rights of Dr. Levin and 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) 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, located at the
Orthodontic Offices, or to the Orthodontic Practice conducted therein, located
at the Orthodontic Offices
(b) 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");
(c) all prepaid claims, prepaid taxes and other prepaid expense items
and deferred charges, credits, advance payments, security and other deposits
made by Dr. Levin to any other person relating to the Orthodontic Practice;
(d) any rights of Dr. Levin pertaining to any counterclaims, set-offs
or defenses he may have with respect to any of the liabilities assumed by OMEGA;
and
(e) any other rights related in any way whatsoever to the Orthodontic
Practice or the Orthodontic Offices, excepting those assets listed on Schedule 1
and further excepting those rights and obligations that cannot legally or
ethically be held by anyone other than a licensed dentist or orthodontist under
applicable laws or ethical rules.
Dr. Levin and the PC represent that each 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, except as stated on Schedule II, attached hereto and
made a part hereof. OMEGA hereby acknowledges and agrees that it is purchasing
and accepting all of the Assets in an "AS-IS" condition as of this date, without
any representations or warranties as to the condition thereof.
OMEGA assumes and agrees to pay, perform and discharge OMEGA shall
assume and pay, perform and discharge the obligations and liabilities on the
part of Dr. Levin and the PC under the Contracts arising on and after the
Closing and no other liabilities or obligations (collectively, 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. Levin or
the PC.
OMEGA and Dr. Levin intend that OMEGA shall not assume or be obligated
to pay, perform or discharge any of the PC's or Dr. Levin's obligations other
than the Assumed Liabilities. Except for the Assumed Liabilities, OMEGA and Dr.
Levin expressly agree that OMEGA is acquiring the Assets free and clear of all
liens, claims and encumbrances.
<PAGE>
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 the PC, Dr. Levin and OMEGA dated as of August ___, 1998.
WITNESS the execution under seal as of this ____ day of August, 1998.
RICHARD A. LEVIN D.D.S., INC.
By:___________________________
Richard A. Levin, D.D.S. President
By:___________________________
Nancy M. Levin, Secretary
RICHARD A. LEVIN D.D.S.
By:___________________________
Richard A. Levin, D.D.S.
ACCEPTED:
OMEGA ORTHODONTICS, INC.
By: ____________________
Robert Schulhof, President
By: ____________________
Edward Mulherin, CFO
<PAGE>
Schedule I
Excluded Assets
1. All cash in all Dr. Levin and P.C. bank accounts
2. Three (3) items of furniture:
(a) "Oak wash stand" in waiting room
(b) "Oak display cabinet" in waiting room
(c) "Cherrywood antique dental cabinet" in consulting room
3. Two (2) lap-top computers (not in office)
4. Three (3) cellular telephones
5. Two (2) pagers
6. 1998 Lexus (leased by P.C.)
7. Any and all cameras and photographic equipment
8. All work-in-progress agreements with PC patients (as shown on patient
cards provided to OMEGA).
<PAGE>
Exhibit Y
List of Contracts
None.
<PAGE>
Schedule 1
Representations and Warranties of
Dr. Levin and the PC to OMEGA
Dr. Levin and the PC hereby represents and warrants to OMEGA as follows:
1. The Orthodontic Practice. The Assets of the Orthodontic Practice are
owned 100% by Dr. Levin and the PC. Dr. Levin and the PC have the full power to
conduct business as currently conducted by the Orthodontic Practice and to own
and lease the property he and it purports to own.
2. Authorization of Transaction. All necessary action has been taken by Dr.
Levin and the PC to authorize the execution of this Agreement by Dr. Levin, and
the delivery and performance of this Agreement and the transactions contemplated
hereby, and this Agreement is the valid and binding obligation of the PC and Dr.
Levin, enforceable against the PC and Dr. Levin 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 the PC and Dr. Levin 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
the PC and Dr. Levin is a party or by which either of them or the Assets are
bound; or (c) any violation of any law, regulation, administrative order or
judicial order applicable to Dr. Levin, the PC 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. Levin 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. Levin 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. Levin, the PC 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. Levin and the PC do not require the consent, waiver,
approval, authorization, exemption of or giving of notice to any governmental
authority.
5. Investigations and Licenses.
(a) Dr. Levin has all necessary licenses to practice orthodontics in the
state of California.
(b) Dr. Levin is not subject to any investigation, whether threatened,
current or pending, under which Dr. Levin may be required to forfeit or suffer
the revocation, suspension or limitation of Dr. Levin's license to practice
orthodontics and Dr. Levin 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 PC. To the best knowledge of Dr. Levin, 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, the PC or Dr. Levin
has good and marketable title 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 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,
except as stated on Schedule II, attached hereto and made a part hereof. OMEGA
hereby acknowledges and agrees that it is purchasing and accepting all of the
Assets in an "AS-IS" condition as of this date, without any representations or
warranties as to the condition thereof..
(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. The PC 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 the PC and Dr. Levin
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, to the best knowledge of Dr.
Levin, The PC 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. To the best knowledge of
Dr. Levin 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 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 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 The PC or by Dr. Levin
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. Levin, threatened against the Orthodontic Practice or Dr.
Levin, 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.
Levin, threatened against or involving Dr. Levin or the Orthodontic Practice,
and to the best the knowledge of Dr. Levin, 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. Levin 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. Levin or the Orthodontic Practice.
12. Insurance. Dr. Levin has possessed occurrence professional liability
coverage for the five (5) years prior to the date of this Agreement protecting
the Orthodontic Practice and Dr. Levin from any professional malpractice
liability that might arise because of the Orthodontic Practice's or Dr. Levin's
practice activities over the preceding five (5) years.
<PAGE>
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Levin to
OMEGA
DR. LEVIN AND COUNSEL PROVIDE, IF ANY
None.
<PAGE>
Schedule 2
Representations and Warranties of
OMEGA to Dr. Levin
OMEGA hereby represents and warrants to Dr. Levin 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 or other legal or administrative
proceeding pending or, to its knowledge, threatened against it which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
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 OMEGA 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 OMEGA is a party or by which its Assets are bound; or (iii) result in a
violation of any law, regulation, administrative order or judicial order
applicable to OMEGA.
5. Financial Statement. Attached as Exhibit AA to the Agreement is the
Financial Statement (10-K) of OMEGA. To the best knowledge of OMEGA, the
Financial Statement is complete and correct and fairly presents in all material
respects the financial position of OMEGA 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.
6. Absence of Undisclosed Liabilities and Changes. Except as disclosed in
Exhibit X to this Schedule, since the date of the Financial Statement (10-K)
there has not been any change in the financial condition, properties, assets,
liabilities, business or operations of OMEGA, 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 OMEGA;
7. 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 OMEGA, threatened against OMEGA, 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 OMEGA, threatened against or involving OMEGA, and there is no
basis for any of the foregoing, and there are no outstanding court orders, court
decrees, or court stipulations to which OMEGA 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 OMEGA.
<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
AFFILIATION AGREEMENT AND
STOCK PURCHASE AGREEMENT
THIS AFFILIATION AGREEMENT AND STOCK PURCHASE AGREEMENT is entered into
as of the ___th day of August, 1998, by and between Omega Orthodontics, Inc., a
Delaware corporation ("OMEGA") and John F. Whitaker, D.D.S. ("Dr. Whitaker"),
who is duly licensed to practice orthodontics in the state of California (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. John F. Whitaker, D.D.S. Inc., a professional corporation (the "Orthodontic
Entity") owns and operates an orthodontic practice with offices located at 13252
Hawthorne Blvd. Suite 200 Hawthorne, CA 90250, (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Whitaker affiliated with the Orthodontic Entity.
C. Dr. Whitaker presently holds and owns 100% of the issued and outstanding
capital stock of the Orthodontic Entity (the issued and outstanding capital
stock is hereafter referred to herein as the "Interests"), represented by the
certificates as follows:
No. Shares Stock Certificate No.
----- --------
D. Dr. Whitaker desires to sell and OMEGA desires to buy the Interests upon the
terms and conditions set forth in this Agreement.
E. Prior to selling the Interests, Dr. Whitaker desires to convert the status of
the Orthodontic Entity from a professional entity to a general purpose entity
and to form a new professional corporation or entity to continue his orthodontic
practice at the Orthodontic Offices.
F. Simultaneously with its acquisition of the Interests, OMEGA shall change the
name of the Orthodontic Entity to Omega Orthodontics of Woodland Hills, Inc., a
Delaware corporation.
G. OMEGA has conducted a review of the Orthodontic Entity, and has reviewed the
Orthodontic Entity's audited financial statement (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. Whitaker have reviewed the Report and OMEGA's
literature, and agree with the Report and the concepts of OMEGA's Exceptional
Practice.
H. Subject to the terms and conditions of this Agreement, OMEGA and Dr. Whitaker
have determined that it is in the best interests of each to effect a sale and
purchase of the Interests of Orthodontic Entity (the "Stock Purchase") as
provided in Section 2.1 hereof.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged to the full
satisfaction of the parties hereto, the parties hereto agree as follows:
ARTICLE I. ENTITY FORMATION AND CONVERSION
1.1 At the Closing (as defined in Section 2.3 hereof), Dr. Whitaker
shall cause the Orthodontic Entity's charter ("Charter") to be amended to
convert the Orthodontic Entity into a general purpose entity under the laws of
the State.
1.2 Dr. Whitaker shall sell the Interests to OMEGA for the
consideration set forth in Article II.
1.3 Dr. Whitaker shall form a new professional entity (the "New PC")
under the laws of the State and, in accordance with the terms of this Agreement,
commence the practice of orthodontics through the New PC.
ARTICLE II. STOCK PURCHASE AND CONSIDERATION
2.1 Stock; Consideration and Payment.
(a) At the Effective Time (as hereinafter defined) and subject to the
terms and conditions hereinafter set forth, OMEGA hereby agrees to purchase and
Dr. Whitaker hereby agrees to sell the Interests to the Orthodontic Entity for
the Consideration (as defined below) and upon the terms and conditions set forth
in the Agreement by surrendering to OMEGA 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). The Stock Purchase shall become effective
upon the transferring of the certificates representing the Interests (the
"Effective Time") to OMEGA and the payment to Dr. Whitaker for the aggregate
consideration (the "Consideration") of:
(i) Two hundred and ten thousand dollars ($210,000.00) in cash
(the "Cash Component"); and
(ii) One-hundred ten thousand dollars ($110,000) to be
represented by a promissory note (the "Purchase Note") payable to Dr.
Whitaker (the "Note Component") in the form attached hereto as Exhibit
B; and
(iii) One-hundred twenty thousand dollars ($120,000) to be
represented by issuance to Dr. Whitaker of shares of unregistered 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 any legal holidays) of the last five days that the stock
trades ending the Friday immediately preceding the effective date of
this Agreement and the Management Services Agreement between Dr.
Whitaker and OMEGA) the Closing (the "Stock Component"), which shall
thereupon be issued to Dr. Whitaker, fully paid and nonassessable.
2.2 Adjustment and Audit.
(a) The Consideration is based on the value of the Interests as
determined by OMEGA from the information set forth in the Financial Statement.
(b) The Consideration shall be subject to adjustments at Closing for:
(i) prepaid and underpaid rent and other lease obligations, if the leases are to
be continued after Closing, as well as for other agreed normal and customary
prepaid and underpaid expenses; (ii) any accrued but unpaid salaries, bonuses
and other compensation, fringe and health insurance benefits, employment or
payroll taxes and related employment obligations and (iii) any accounts payable
of the Orthodontic Entity which have accrued prior to the Effective Time and
which remain unpaid as of such time (the "Accounts Payable") in excess of an
amount equal to one-half (1/2) of one "Average" month of gross income from the
Orthodontic Entity. As used herein, Average shall mean an average of the
Accounts Payable of the Orthodontic Entity using the last twelve months prior to
the end of the month immediately preceding the Effective Time.
(c) The adjustments to the Consideration, if any, shall be applied in
the following order of priority; first to the Cash Component, and the balance,
if any, to the Stock Component.
2.3 Time and Place of Closing. The closing of the transactions
contemplated hereby (herein called the "Closing") shall be held immediately
before the Effective Time at the offices Richard M. Rosenthal, Esq., in Encino,
California or at such other place, date or time as may be fixed by mutual
agreement of the parties.
2.4 Certificates; Resignations, Filing Certificate of Name Change.
Contemporaneous with the Closing, Dr. Whitaker shall deliver to OMEGA the
certificates evidencing the Interests, duly endorsed for transfer and otherwise
as provided in Section 2.1, and written resignations from all officers and
directors of the Orthodontic Entity. OMEGA shall prepare the duly executed
Certificate(s) of Name Change reflecting the name change of the Orthodontic
Entity to be filed with the State Secretary of State.
2.5 Delivery of Records, Contracts, Interests. At the Closing Dr.
Whitaker shall deliver or cause to be delivered to OMEGA:
(a) all of the Orthodontic Entity's minute books, stock records and
other books and records and the Orthodontic Entity's leases, contracts,
employment agreements, non-compete agreements, commitments and rights, with such
consents to the Stock Purchase as are necessary to assure OMEGA of the full
benefit of the same.
(b) Evidence of malpractice insurance coverage for the current and five
(5) prior years, and if applicable, evidence of so-called "tail" insurance for
such period naming the Orthodontic Entity as a co-insured or otherwise assigning
to the Orthodontic Entity, its successor and assigns the full benefits thereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Representations and Warranties of Dr. Whitaker 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. WHITAKER
Dr. Whitaker 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 the Orthodontic Entity business only in the ordinary
course, and refrain from changing or introducing any method of management or
operations except in the ordinary course of business and consistent with prior
practices;
(b) refrain from making any purchase, sale or disposition of any asset
or property other than in the ordinary course of business, from purchasing any
capital asset costing more than $1,000 and from mortgaging, pledging, subjecting
to a lien or otherwise encumbering any of the Interests, the Property or other
assets of the Orthodontic Entity;
(c) refrain from incurring any contingent or fixed obligations or
liabilities except those that are usual and normal in the ordinary course of
business;
(d) refrain from making any change or incurring any obligation to make
a change in its Charter or By-laws (certified copies of which are attached
hereto as Exhibit C) or authorized or issued capital stock, except as
contemplated by this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or
making any other distribution in respect of capital stock, or making any direct
or indirect redemption, purchase or other acquisition of capital stock, of the
Orthodontic Entity;
(f) use his best efforts to keep intact its business organization, to
keep available its present officers, agents and employees and to preserve the
goodwill of all patients, suppliers, and others having business relations with
it;
(g) not commit or fail to commit any act which would cause Dr. Whitaker
or the Orthodontic Entity to suffer the revocation, suspension or limitation of
Dr. Whitaker's or the Orthodontic Entity's license.
(h) permit OMEGA and its authorized representatives to have full access
to all its properties, assets, records, tax returns, Orthodontic Entity records,
contracts and documents and furnish to OMEGA or its authorized representatives
such financial and other Information with respect to its business or properties
as OMEGA may from time to time reasonably request.
4.2 Authorization from Others. Prior to the Closing, he will have
obtained all assignments, authorizations, consents and permits of others
required to permit the consummation by Dr. Whitaker 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 OMEGA and shall use
his best efforts to prevent or promptly remedy the same.
4.4 Consummation of Agreement. Each shall use his best efforts to
perform and fulfill all conditions and obligations on his 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. Whitaker 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 6 will have been accomplished.
6.1 Representations; Warranties; Covenants. Each of the representations
and warranties of Dr. Whitaker contained in Schedule 1 shall be true and correct
as though made on and as of the Closing, and Dr. Whitaker 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. Whitaker shall have formed the New PC under the laws of
the State in order to commence the practice of orthodontics through the New PC.
Dr. Whitaker 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. Whitaker 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 D.
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. The Orthodontic Entity shall, at OMEGA's expense, notify
all patients and obligors of accounts receivable, and third party payors and
others designated by OMEGA of the Stock Purchase and the other transactions
contemplated hereunder pursuant to notices substantially in the form
collectively attached hereto as Exhibit B.
6.7 Financial Condition. The financial condition of the Orthodontic
Entity shall not be materially adversely different from the Financial Statement,
as determined by OMEGA. During the period from the date of the Financial
Statement to the Closing, there shall not have been any material adverse change
in the financial condition, results of operations, business or prospects of the
Orthodontic Entity, nor any material loss or damage to its assets, whether or
not insured, which materially affects the ability of Orthodontic Entity to
conduct its business. Dr. Whitaker shall cause the Orthodontic Entity to deliver
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. Whitaker and the Orthodontic Entity as not reflecting any data
or information which individually or in the aggregate, if previously disclosed,
would have indicated that there was a material adverse change in the business of
the Orthodontic Entity or in the condition or prospects (financial or otherwise)
of the assets, properties, operations, patients, employees or equipment of the
business of the Orthodontic Entity from the information provided prior to the
date hereof. As used herein, Due Diligence shall mean, without limitation, the
results of the Audit of the Financial Statement and of all other matters
(financial or otherwise) related to, or otherwise deemed material by OMEGA,
regarding Dr. Whitaker and the Orthodontic Entity, including location of the
Orthodontic Offices and its demographics, the leases, the Equipment, insurance,
licensing, malpractice issues, liabilities, compliance with laws and regulations
and health surveys.
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF DR. WHITAKER
The obligations of Dr. Whitaker to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing the actions required by this Article 7 will have been accomplished.
7.1 Representations; Warranties; Covenants. Each of the representations
and warranties of OMEGA contained in Schedule 2 shall be true and correct as
though made on and as of the Closing and each of OMEGA 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.
Whitaker and New PC a Management Services Agreement and a Stock Put/Call Option
and Successor Designation Agreement, each having substantially the terms and
conditions of the forms hereof collectively attached hereto as Exhibit D.
7.4 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. Whitaker
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. Whitaker 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. Whitaker, his accountants
and attorneys, reasonable access to such books and records for the purpose of
preparing such tax returns of Dr. Whitaker as may be required after the Closing
and for other proper purposes approved by OMEGA.
8.3 License. Dr. Whitaker shall maintain all licenses necessary to
practice orthodontics in the State. Dr. Whitaker shall not commit or fail to
commit any act which would cause Dr. Whitaker or the New PC to suffer the
revocation, suspension or limitation of Dr. Whitaker's or the New PC's license.
ARTICLE IX. INDEMNIFICATION.
9.1 Indemnification By Dr. Whitaker. Subject to the limitations set
forth in Section 9.3, Dr. Whitaker agrees to defend, indemnify and hold each of
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. Whitaker 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. Whitaker harmless
from and against any damages, liabilities, losses and expenses (including
reasonable counsel fees) to the extent such are sustained or suffered by Dr.
Whitaker 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 Limitation of Liability. Notwithstanding anything to the contrary
contained in this Agreement, or any Schedule or Exhibit hereto, in no event
shall Dr. Whitaker, or OMEGA or their officers, directors or employees be liable
for any form of indirect, special, incidental or consequential damages, whether
such damages arise in contract or tort, irrespective of fault, negligence or
strict liability.
9.5 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.
9.6 Payment of Claims; Alternative Dispute Resolution. (a) Any
indemnification claims shall be paid or otherwise satisfied by Dr. Whitaker, or
Dr. Whitaker's transferees in liquidation, within 30 days after notice thereof
is given by OMEGA. In the event Dr. Whitaker 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
handled in accordance with this Section.
(b) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit D hereto and the parties agree to use these procedures, except paragraph
(c) of this Section 9.5, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(c) Notwithstanding anything in this Section 9.5 to the contrary,
nothing in this Section 9.5 shall preclude any party from seeking a preliminary
injunction or other provisional relief, either prior to or during the proceeding
provided for in this section, if in its judgment such action is necessary to
avoid irreparable damage or to preserve the status quo.
ARTICLE X. MISCELLANEOUS.
10.1 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 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. Whitaker if the conditions stated in
Article VII have not been satisfied at or prior to the Closing.
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. Whitaker, to:
John F. Whitaker, D.D.S.
13252 Hawthorne Blvd. Suite 200
Hawthorne, CA 90250
If to the OMEGA, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, CA 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
10.5 Entire Agreement. This Agreement (including all exhibits or
schedules appended to this Agreement and all documents delivered pursuant to the
provisions of this Agreement, all of which are hereby incorporated herein by
reference) together with the Management Services Agreement and the Stock
Put/Call Option and Successor Designation Agreement (including all exhibits and
schedules thereto), taken together, constitute the entire agreement between the
parties, and all promises, representations, understandings, warranties and
agreements with reference to the subject matter hereof and inducements to the
making of this Agreement relied upon by my party hereto, have been expressed
herein or therein.
10.6 Binding Agreement, Successors. This Agreement shall be binding
upon, and shall be enforceable by and inure to the benefit of, the parties named
herein and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties without the prior written
consent of all the other parties, provided, however that OMEGA shall be
permitted to assign its rights and obligations hereunder without the consent of
Dr. Whitaker to any financing institutions as may be required by such financing
institutions or the terms of credit agreements which may be entered into from
time to time by Omega for the obtaining of additional financing for Omega.
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 California and, together with the
rights and obligations of the parties hereunder, shall be construed under and
governed by the laws of such state. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision hereof.
10.9 Referrals. Nothing in this Agreement shall be construed as an
offer or payment to the other party or any affiliate of the other party of any
cash or other remuneration whether directly or indirectly, overtly or covertly,
specifically for patient referrals or for recommending or arranging the
purchase, lease or order of any item or service. The Consideration to be
received upon consummation of the Stock Purchase represents the fair market
value of the Orthodontic Entity and is not in any way related to or dependent
upon referrals by and between OMEGA and Dr. Whitaker.
10.10 Further Assurances. Following the execution of this Agreement,
Dr. Whitaker 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 INTENTIONALLY BLANK
10.12 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.
_______________________________
Printed Name: John F. Whitaker, D.D.S.
John F. Whitaker, D.D.S., Inc.
(As to Section 10.11 Only)
By: _______________________________
John F. Whitaker, D.D.S.
Its _______________________________
Duly Authorized
OMEGA ORTHODONTICS, INC.
By: _______________________________
Printed Name: Robert J. Schulhof
Its President and
Chief Executive Officer
Duly Authorized
<PAGE>
Exhibit A
Financial Statement
<PAGE>
Exhibit B
Notices
<PAGE>
Exhibit C
Orthodontic Entity's Charter and
By-Laws and Stock Certificates
<PAGE>
Exhibit D
Draft Management Services Agreement and
Stock Put/Call Option and Successor Designation Agreement
<PAGE>
Exhibit E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within
such longer period of time as the parties may mutually agree, the parties have
not succeeded in negotiating a resolution of the claim or dispute or agreeing on
a dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
either the Center for Public Resources, California, ("CPR") Panels of Neutrals,
the American Arbitration Association ("AAA") or the Association of Attorney
Mediators ("AAM"), with the assistance of such organization, unless the parties
agree otherwise in finding a mutually acceptable mediator.
5. OMEGA shall bear 50% and the New PC and Dr. Whitaker shall bear 50%
of the fees and costs of the mediator and any fees and costs of CPR, AAA or AAM.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR, AAA or AAM.
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 AAA, AAM or CPR, to a qualified sole arbitrator in
accordance with the then current CPR Rules for Non-Administered Arbitration of
Business Disputes or comparable AAA or AAM rules. The sole arbitrator shall be
agreed upon by the parties within twenty (20) days after either party elects to
submit any issue to arbitration or, failing that, shall be selected by the
organization to whom the parties selected for arbitration. A qualified
arbitrator is one who is familiar with the principal subject matter of the
issues to be arbitrated such as by way of example, healthcare services industry
matters, management consulting services generally or business law/corporate
matters generally. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The arbitrator shall not have the
authority to award multiple, punitive or consequential damages under any
circumstances. If the party initially raising the dispute to be resolved is New
PC or Dr. Whitaker, the arbitration shall be held in Boston, Massachusetts, and
if the party initially raising the dispute to be resolved is the MSO or OMEGA,
the arbitration shall be held in Los Angeles, California.
<PAGE>
Schedule 1
Representations and Warranties of
Dr. Whitaker to OMEGA
Dr. Whitaker hereby represents and warrants to OMEGA as follows:
1. Organization and Qualification of the Orthodontic Entity. The
Orthodontic Entity is a duly formed and organized professional corporation under
the laws of the State. The Orthodontic Entity is a legally existing professional
corporation under the State Professional Corporation Act (the "Act") and no
event has occurred which alone or after the passage of time would result in the
dissolution of the Orthodontic Entity. The Orthodontic Entity has the full power
to conduct business as currently conducted by the Orthodontic Entity and to own
and lease the property it purports to own. The copies of any articles of
organization or incorporation and by-laws, as defined in the Act, of the
Orthodontic Entity which are currently in effect, and all amendments thereto
(collectively, the "Charter and By-Laws"), certified by Dr. Whitaker, attached
hereto as Exhibit C are complete and correct.
2. Authorization of Transaction. All necessary action, Orthodontic
Entity or otherwise, has been taken to authorize the execution of the Agreement
by Dr. Whitaker, and the delivery and performance of this Agreement and the
transactions contemplated hereby, and the Agreement is the valid and binding
obligation of Dr. Whitaker, enforceable against Dr. Whitaker 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. Whitaker 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.
Whitaker 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. Whitaker or the Orthodontic Entity, or their
business or assets.
4. No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery and performance of this Agreement,
nor the performance of the transactions contemplated hereby, will: (i)
constitute a breach or violation of Orthodontic Entity's Charter or By-Laws;
(ii) conflict with or constitute (with or without the passage of time or the
giving of notice) a breach of, or default under, any debt instrument to which
Dr. Whitaker or the Orthodontic Entity is a party, or give any person the right
to accelerate any indebtedness or terminate any right; (iii) constitute (with or
without the passage of time or giving of notice) a default under or breach of
any other agreement, instrument or obligation to which the Orthodontic Entity or
Dr. Whitaker 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. Whitaker, their business or assets.
(b) Except as disclosed on the attached Exhibit X to this Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by the Orthodontic Entity do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
5. Investigations and Licenses.
(a) The Orthodontic Entity and Dr. Whitaker have all necessary licenses
to practice orthodontics in the State.
(b) Neither the Orthodontic Entity nor Dr. Whitaker is subject to any
investigation, whether threatened, current or pending, under which the
Orthodontic Entity or Dr. Whitaker may be required to forfeit or suffer the
revocation, suspension or limitation of Dr. Whitaker's or the Orthodontic
Entity's license to practice orthodontics and neither the Orthodontic Entity nor
Dr. Whitaker is subject to any investigation, whether threatened, current or
pending by a commercial third-party payor.
6. Financial Statement. Attached as Exhibit A to the Agreement is the
Financial Statement of the Orthodontic Entity. To the best knowledge of Dr.
Whitaker, the Financial Statement is complete and correct and fairly presents in
all material respects the financial position of the Orthodontic Entity as at the
date of such statement and the results of its operations for the period then
ended, in accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby for the periods covered thereby.
7. Capitalization and the Interests. The authorized capital of the
Orthodontic Entity consists of the Interests. All of the Interests have been
validly issued and are fully paid and non-assessable. There are no options,
warrants, rights or other agreements or commitments obligating the Orthodontic
Entity or Dr. Whitaker to issue or sell the Interests and there are no
pre-emptive rights with respect to any Interests. Dr. Whitaker is the beneficial
and record owner of the Interests. Dr. Whitaker has good title to the Interests,
free and clear of any liens, encumbrances or restrictions of any kind. The
Interests are not subject to any voting or similar agreement.
8. Property; Liens; Condition.
(a) Except as set forth on Exhibit X to this Schedule, the Orthodontic
Entity has good and marketable title in fee simple to all of its owned real and
personal property, including without limitation, all machinery and equipment
used or owned by the Orthodontic Entity (the "Equipment") free of liens and
encumbrances (the "Property"). All the Property owned or leased by the
Orthodontic Entity is in good repair, has been well maintained, substantially
conforms with all applicable ordinances, regulations and zoning or other laws.
The Equipment is in good working order.
(b) No other entity or person owns any of the assets necessary for the
operation of the Orthodontic Entity. The Orthodontic Entity does not operate any
of its practice through any other entities or persons.
9. Payment of Taxes. The Orthodontic Entity has filed all federal,
state and local income, excise or franchise tax returns, real estate and
personal property tax returns, sales and use tax returns and other tax returns
required to be filed and has paid all taxes owing except taxes which have not
yet accrued or otherwise become due for which adequate provision has been made
in the Financial Statement. All transfer, excise or other taxes payable by
reason of the Stock Purchase pursuant to the Agreement shall be paid or provided
for by the Dr. Whitaker after the Closing out of the Consideration to be
received upon consummation of the Stock Purchase.
10. Absence of Undisclosed Liabilities and Changes.
(a) As of the date of the Financial Statement, the Orthodontic Entity
had no liabilities of any nature, whether accrued, absolute, contingent or
otherwise (including without limitation liabilities as guarantor or otherwise
with respect to obligations of others, or liabilities for taxes due or then
accrued or to become due), except (i) liabilities stated or adequately reserved
against on the Financial Statement, (ii) liabilities not in excess of $5,000
arising in the ordinary course of business since the date of the Financial
Statement, and (iii) liabilities disclosed in Exhibit X to this Schedule. There
is no fact which materially adversely affects, or may in the future (so far as
can now be reasonably foreseen) materially adversely affect, the business,
properties, operations or condition of the Orthodontic Entity which has not been
specifically disclosed herein or in Exhibit X to this Schedule.
(b) Except as disclosed in Exhibit X to this Schedule, since the date
of the Financial Statement there has not been:
(i) any change in the financial condition, properties, assets,
liabilities, business or operations of the Orthodontic Entity, which change by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been materially adverse with respect to the
Orthodontic Entity;
(ii) any mortgage, encumbrance or lien placed on any of the
Interests or the Property, or the property subject to any lease, or which
remains in existence on the date hereof or at the time of Closing; or
(iii) any obligation or liability incurred by the Orthodontic
Entity other than obligations and liabilities incurred in the ordinary course of
business and disclosed on Exhibit X attached to this Schedule.
11. Litigation. Except for matters described on Exhibit X to this
Schedule, there is no action, suit, claim, proceeding or investigation pending
or, to the knowledge of the Orthodontic Entity or Dr. Whitaker, threatened
against the Orthodontic Entity or Dr. Whitaker, at law or in equity, or before
or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality or governmental inquiry
pending or, to the knowledge of the Orthodontic Entity or Dr. Whitaker,
threatened against or involving Dr. Whitaker or the Orthodontic Entity, and
there is no basis for any of the foregoing, and there are no outstanding court
orders, court decrees, or court stipulations to which the Orthodontic Entity or
Dr. Whitaker 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. Whitaker or the Orthodontic Entity.
12. Insurance. The Orthodontic Entity has possessed adequate occurrence
Professional liability coverage for the five (5) years prior to the date of this
Agreement protecting the Orthodontic Entity and Dr. Whitaker from any
professional malpractice liability that might arise because of the Orthodontic
Entity's or Dr. Whitaker'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. Whitaker and the New PC. The Orthodontic Entity possesses adequate insurance
coverage for its Property.
13. Taxes. The Orthodontic Entity has filed all tax returns, federal,
state, county and local, required to be filed by it, and the Orthodontic Entity
has paid all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Orthodontic Entity is obligated to
withhold from amounts owing to employees, creditors and third parties. The
Orthodontic Entity has established adequate reserves for all taxes accrued but
not yet payable. All tax elections have been made by the Orthodontic Entity in
accordance with generally accepted practice. The federal income tax returns of
the Orthodontic Entity have never been audited by the Internal Revenue Service.
No deficiency assessment with respect to or proposed adjustment of the
Orthodontic Entity's federal, state, county or local taxes is pending or
threatened. There is no tax lien, whether imposed by any federal, state, county
or local taxing authority, outstanding against the assets, properties or
business of the Orthodontic Entity. Neither the Orthodontic Entity nor any of
its present or former stockholders has ever filed an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Orthodontic Entity be taxed as an S corporation. The Orthodontic Entity's
net operating losses for federal income tax purposes, as set forth in the
financial statements referred to in Section 2.05, are not subject to any
limitations imposed by Section 382 of the Code and the full amount of such net
operating losses are available to offset the taxable income of the Orthodontic
Entity for the current fiscal year and, to the extent not so used, succeeding
fiscal years. Consummation of the transactions contemplated by this Agreement or
by any other agreement, understanding or commitment (contingent or otherwise) to
which the Orthodontic Entity is a party or by which it is otherwise bound will
not have the effect of limiting the Orthodontic Entity's ability to use such net
operating losses in full to offset such taxable income.
14. Assumptions, Guaranties, Etc. of Indebtedness of Other Persons.
Except as set forth in Schedule X, The Orthodontic Entity has not assumed,
guaranteed, endorsed or otherwise become directly or contingently liable on any
indebtedness of any other person (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor, or otherwise to
assure the creditor against loss), except for guaranties by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.
15. Compliance with ERISA. Except as set forth in Schedule X, the
Orthodontic Entity has not established, maintained, made or been required to
make any contributions to, or terminated, nor does it have any liabilities with
respect to, any employee benefit plan within the meaning of, and which is
subject to, Section 3 of the Employee Retirement Income Security Act of 1974, as
amended.
16. Disclosures. Neither this Agreement nor any exhibit or schedule
hereto, nor any report, certificate or instrument furnished to the Purchasers or
their counsel in connection with the transaction contemplated by this Agreement,
when read together, contains or will contain any material misstatement of fact
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading. The Seller knows of no information or fact which has or
would have a material adverse effect on the financial condition, business or
prospects of the Orthodontic Entity which has not been disclosed to the
Purchasers.
<PAGE>
EXHIBIT X
Exceptions to Representations and
Warranties of Dr. Whitaker to OMEGA
<PAGE>
Schedule 2
Representations and Warranties of
OMEGA to Dr. Whitaker
OMEGA hereby represents and warrants to Dr. Whitaker as follows:
1. Organization. That it is a corporation duly organized, validly
existing and in good standing under the laws of Delaware with full corporate
power to own or lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or such business is
conducted by it.
2. Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by it to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
obligation of it enforceable against it in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3. Litigation. There is no litigation pending or, to its knowledge,
threatened against it which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
4. Securities Not Registered. It understands that the Interests to be
purchased have not been registered under the Securities Act of 1933, as amended,
or under the securities laws of any state and that neither the Securities and
Exchange Commission nor any state securities commission has approved or
disapproved of the securities.
OMEGA ORTHODONTICS, INC.
3621 SILVER SPUR LANE
ACTON, CALIFORNIA 93510
02/28/99
Jack A. Hill, D.D.S.
Jack A. Hill D.D.S. Inc.
- ----- --------------
- -------------------
Re: Letter of Intent
Dear Dr. Hill:
As we have discussed, Omega Orthodontics, Inc., a Delaware corporation ("OMEGA")
is interested in entering into an arrangement with you under which it would
provide to you management services for your orthodontic practices conducted
currently at __________________________ for a period of two years pursuant to a
Management Services Agreement. At the expiration of the Management Services
Agreement, you will have the option to: (a) sell the non-professional assets of
your practice to Omega as set forth in section 5; or (b) renew the Management
Services Agreement for a period to be mutually agreed.
1. Form of Practice. As you have indicated, you are licensed to practice
dentistry in the State of Texas and are currently doing business through a
___________ professional corporation known as Jack A. Hill D.D.S., Inc. (the
"PC").
2. Management Services. Upon execution of this letter of intent, The parties
agree that Omega shall provide management services to your PC on the terms and
conditions specified in the Management Agreement attached hereto as Exhibit 1
and as generally set forth below. Management Services shall be provided by Omega
Orthodontics of Austin, Inc. ("MSO"), a wholly owned subsidiary of OMEGA. Under
the terms of the Management Agreement, Omega will pay all operating expenses of
the practice and will be compensated at a rate equal to ___% of the gross
receipts of the practice.
The terms of the management service agreement will include the following
material terms:
A. Final Authority of the Doctor. Although Omega may advise the doctor
on management of the practice the doctor has all final authority over
all decisions on diagnosis, treatment, fees, selection of materials and
appliances.
B. Work Days and Vacations. The doctor has final authority on selection
of days worked and vacations as long as the schedule respects patient
treatment needs and agrees to work an average of ____days per month and
carry patient loads of ____ patients per day if it is necessitated by
patient load.
C. Staff. Omega will provide screening of all new staff and current
non-professional staff must meet Omega's approval. Doctor will have the
final selection of new staff from those approved by Omega and may order
the termination of any staff not meeting his standards of performance.
D. Collection and Accounting. All funds will be collected by Omega and
deposited in a special bank account under the name of the doctor, and
all funds will be distributed by Omega under power of attorney from the
Doctor.
E. Cash vs Accrual Accounting. Because we are governed by SEC
accounting rules, our accounting for profit and loss is based upon the
accrual method of accounting. However, payments under the management
agreement will be made to both parties based upon the cash collected.
F. Compensation to Omega. Omega will receive for its services __% of
the collected gross income, and will be responsible for paying all
practice expenses including staff salaries and benefits, supplies,
facilities, equipment, maintenance, facility Insurance, management and
marketing costs. During the term of the Management Agreement, Omega
will also receive an additional management fee of $____, per month to
provide to offset start-up costs with respect to the practice. In no
case will the net management fee to Omega be less than $___,000 in any
year of the agreement.
G. Personal responsibilities of Doctor. Omega will not pay for Doctor's
liability insurance, professional dues, continuing education expenses,
automobile, or entertainment for the purpose of practice development
not specifically approved.
H. Cash Advances by Omega. If in any month the actual cash received is
not sufficient to cover current expenses and the Doctor's draw, the MSO
will advance the necessary funds to make such payments at no interest.
I. Profit Sharing. At the end of each fiscal year, expenses and income
will be reviewed. If less than __% of the gross income of the practice
has been spent on expenses of the practice (other than salary for
professionals) the MSO will payout 50% of the savings to Doctor
"Payout". If more than 60% has been spent 65% of the excess will be
charged to a expense account and recorded as a liability against future
Payouts.
J. Term of the agreement. The term of the agreement between the MSO and
PC will be for 2 years, renewable upon the mutual agreement of the
parties.
K. Reasons for termination. Either side may terminate the agreement for
significant non performance of duties by the other party, provided the
other party has been given notice of the non performance and has had
reasonable time to correct the deficiency. This includes non payment of
the note tendered by Omega as a part of the acquisition of the MSO, as
described below in paragraph 7.
L. Insolvency of Omega. In the event that Omega becomes insolvent or
does not pay the practice expenses in a timely manner, the Doctor will
reassume all control over the bank account and may terminate the
management agreement.
M. Non Competition. Both parties will during the term of the management
agreement not work for or establish a competing orthodontic facility
within 15 miles of the existing facility without the prior written
consent of the other party. Doctor agrees to cause all professional
employees, partner or owners of the PC to be covered by similar
agreements.
4. Use of other facilities. It is understood and agreed that in order optimize
your orthodontics practice, you shall agree to perform your practice at such
locations as Omega may reasoanbly require. In the event the foregoing results in
the utilization of another Doctor's facilities, an appropriate, mutually
acceptable arrangement shall be concluded with the goal of fairly allocating
both cost and income.
5. Option to sell Management Elements. At the expiration of the Management
Services Agreement you shall have the option to have Omega purchase the
management elements of your practice for the following price and conditions:
a. The consideration paid to you for the acquisition of the management
elements of your practice would be _____ in cash, _______ in the common
stock of Omega and _____ in promissory note. Shares of stock of Omega
tendered for the acquisition will be the average daily closing sales
price of the stock for the week ending on the Friday preceding the date
such option is officially exercised.
b. The structure of the transaction would be mutually agreed by the
parties so as to minimize any potential tax exposure by the parties. It
is understood that the purchase of the management elements of your
practice will possibly require the formation of new entities,
professional and otherwise, as well as require the completion and
execution of several agreements including but not limited to a revised
Management Services Agreement, OMEGA's Non Competition Agreement,
OMEGA's Stock or Asset Purchase Agreement with reference to the shares
of the Doctor's Professional Corporation, a stock option agreement with
respect to shares of OMEGA, and a Promissory Note.
6. Contingencies. Promptly following execution of this letter of intent, you
will schedule an in-office visit with a representative of Omega to evaluate the
facility and existing systems and to introduce Omega to the staff of your
practice. The monetary portion of your option which you may have to sell the
management elements of you practice pursuant to _____above, will be contingent
upon a financial audit of the practice prior to the completion of the
transaction which confirms the unaudited data provided by you. If the audit
reveals either that the gross or net income is different than the data provided
by you, appropriate adjustments will be made to the purchase price.
The following will be prepared by the your accountant and presented as part of
the prior to exercising your option:
a. Three years federal tax returns
b. Current years financial statements to closing date
c. List of fixed assets
d. Accounts Receivable Summary
e. Liabilities assumed
f. Notes payable, if applicable
g. Capital Purchases schedule
h. Any special considerations
7. Confidentiality.
a. Confidentiality of Practice Information. Omega hereby agrees to hold
any and all financial and operating information regarding your practice
in strictest confidence and will not divulge such information to third
parties without your express consent.
b. Confidentiality of Omega Information. You will be provided detailed
financial, operating and contractual information of Omega in order to
allow you to evaluate the appropriateness of an affiliation with Omega.
You agree to hold such information in the strictest confidence and will
not divulge it to any third parties without the prior express consent
of Omega. You also agree not to utilize materials which are valuable
trade secrets of Omega, including but not limited to, contracts and
methodology in any business endeavor without the written consent of
Omega.
8. Cooperation. The parties hereto will cooperate with each other in every way
in carrying out the transactions contemplated herein, in obtaining any and all
required approvals and authorizations, and in executing and delivering all
documents, instruments or copies thereof deemed necessary or useful by the other
parties.
9. Costs. Each party hereto shall bear and be responsible for its own costs and
expenses, including legal and accounting fees, incurred in connection with the
transactions contemplated hereunder.
10. Specific Performance: the parties agree that irreparable damage would result
in the event that this Agreements not fully performed. Therefore, the rights and
obligations of the parties hereunder shall be enforceable in a court of equity
by a decree of specific performance, and appropriate injunctive relief may be
applied for and granted in connection therewith. Such remedies are not exclusive
and shall be in addition to any other remedies that either party may have under
this agreement or otherwise.
11. Liability. Notwithstanding anything to the contrary in this Agreement, in no
event shall Omega be liable for any form of indirect, special or consequential
damage, whether such damage arises in contract or tort, irrespective of fault,
negligence or strict liability.
12. Completion. The parties hereto agree to complete the transactions described
herein no later than March 31, 1998, unless extended by agreement of the
parties. By executing this letter of intent, the parties agree to negotiate an
agreement in good faith based upon the principles stated herein, but are not
hereby agreeing to the specific terms of this letter and do not agree to be
bound hereby, other than paragraph 9 hereof.
13. Entire Agreement. This Agreement constitutes the entire agreement between
the Members with respect to the subject matter herein, and is subject to no
other oral or written proposals, agreements, or understandings whatsoever, and
can only be supplemented or amended by a written document subscribed by the
Members.
14. Governing Law. This Agreement shall be construed, performed and enforced in
accordance with the laws of the Commonwealth of Massachusetts applicable to
agreement made and to be performed wholly within such jurisdiction. Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of any U.S.
Federal court located in Massachusetts or Massachusetts state court in any
action or proceeding arising out of or relating to this Agreement.
If you agree to the foregoing terms and conditions, please indicate
your acceptance thereof by countersigning the enclosed copy of this letter and
returning it to me in the enclosed envelope. I look forward to hearing from you.
Sincerely yours,
Robert J. Schulhof
Agreed and Accepted:
By:_______________________
John F. Whitaker, D.D.S.
MANAGEMENT AGREEMENT
This Management Agreement is entered into as of this 1st day of May, 1998 by
and between Jack A. Hill, D.D.S. Inc., ("Dr. Hill") who is duly licensed to
practice orthodontics in the state of Texas (the "State") through a professional
corporation and Omega Orthodontics Incorporated, ("OMEGA") and Omega
Orthodontics of Austin, Inc., a Delaware corporation ("MSO").
RECITALS
A. OMEGA, through its operating subsidiaries such as the MSO, provides
professional management and marketing services to orthodontic and other
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. Hill owns and operates an orthodontic practice (the "Orthodontic
Practice") with offices located at 4701 Westgate Blvd., Austin, Texas 78745 (the
"Orthodontic Offices") and furnishes orthodontic care to the general public.
C. OMEGA's services are designed to improve the efficiency and
profitability of the Dr. Hill's practice while enhancing the ability of Dr. Hill
to render quality orthodontic care to his patients.
D. Dr. Hill wishes to retain OMEGA to perform the functions and to
provide the services described in this Agreement to assist him to achieve the
above goals.
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:
<PAGE>
1.0 Term of the Agreement
1.1 Appointment as Business Manager. Effective as of May 1, 1998 (the
"Commencement Date"), Dr. Hill hereby appoints OMEGA as the sole and exclusive
business manager of the Orthodontic Practice and agrees that OMEGA shall have
all power and authority reasonably necessary to manage the non-orthodontic
business affairs of the Orthodontic Practice, subject to the requirements of the
applicable provisions of State law relating to the practice of orthodontics.
1.2 Term. This Agreement shall take effect on the Commencement Date and shall
remain in full force and effect for a period of two (2) years, unless such term
is extended in accordance with Clause 6.2 hereof.
2.0 Duties and Compensation
2.1 Duties of OMEGA. The duties of OMEGA and the MSO under this Agreement are
set forth in Schedule 1 attached hereto and incorporated herein by this
reference.
2.2 Duties of Dr. Hill. The duties of Dr. Hill under this Agreement are set
forth in Schedule 2 attached hereto and incorporated herein by this reference.
2.3 Compensation. The terms of the compensation to be paid under this Agreement
are set forth in Schedule 3 attached hereto and incorporated herein by this
reference.
3.0 Limitations on Scope of Services
3.1 Professional Services. 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 OMEGA. Thus, Dr. Hill shall have sole and absolute control of the
delivery of all professional services and treatment rendered to patients at the
Orthodontic Offices.
3.2 Solicitation. No employee or other representative of OMEGA or the MSO shall
be engaged in, or allowed to solicit patients on behalf of, Dr. Hill, nor shall
OMEGA have any control over Dr. Hill's patients.
3.3 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 Orthodontic
Practice shall be used or distributed without having first been approved by Dr.
Hill.
3.4 Reciprocation. 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 OMEGA to any
patients of Dr. Hill or his 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 Dr. Hill or any
of his employees, contractors or agents.
4.0 Independent Contractor Relationship Neither Dr. Hill nor his employees shall
have any claim under this Agreement or otherwise against OMEGA or 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 Dr. Hill.
5.0 Insurance and Indemnity
5.1 Insurance to Be Maintained by Dr. Hill. Throughout the term of this
Agreement, Dr. Hill 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. Hill and each of the
orthodontists providing services for the Orthodontic Practice. Dr. Hill shall be
responsible for all liabilities within deductibles and for all liabilities in
excess of the limits of such policies. OMEGA agrees to negotiate for and cause
premiums to be paid on behalf of Dr. Hill with respect to such insurance.
Premiums and deductibles with respect to such policies shall not be OMEGA
Expenses (as defined in Schedule 1). Dr. Hill also agrees to name OMEGA as an
additional insured and provide for appropriate waivers of insurers rights of
subrogation. Dr. Hill agrees to deliver to OMEGA a certificate of insurance
indicating such coverage. Dr. Hill will furnish the other certificates from
their insurance carriers, evidencing the insurance coverages required in this
Article.
5.2 Insurance to Be Maintained by Omega. Throughout the term of this Agreement,
OMEGA will pay as an OMEGA Expense (a) comprehensive professional liability
insurance for all professional employees of OMEGA with limits as determined
reasonable by OMEGA; and (b) comprehensive general liability and property
insurance covering the Orthodontic Office premises and operations.
5.3 Tail Insurance Coverage. Dr. Hill and each orthodontist (if any) providing
services through the Orthodontic Practice that upon termination of Dr. Hill's or
such endodontist's relationship with the Orthodontic Practice, for any reason,
tail insurance coverage will be purchased by Dr. Hill or such orthodontist. Such
provisions may be contained in an employment agreement, restrictive covenant
agreement or other agreement entered into by Dr. Hill or the orthodontist, and
Dr. Hill hereby covenants with OMEGA to enforce such provisions relating to the
tail insurance coverage or to provide such coverage at the expense of Dr. Hill
or each such orthodontist.
5.4 Additional Insureds. Dr. Hill and OMEGA agree to have each other named as an
additional insured on the other's respective liability insurance policies and
such policies shall also contained appropriate waiver of insurers rights of
subrogation in favor of the named insureds.
5.5 Indemnification. Dr. Hill shall indemnify, hold harmless and defend OMEGA
and the MSO, its affiliates and its and their respective officers, directors,
shareholders, employees and representatives, from and against any and all
liabilities, 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 Dr. Hill and/or the other orthodontic and dental professionals employed by
him and his employees and/or his subcontractors (other than OMEGA) during the
term hereof. OMEGA and the MSO shall indemnify, hold harmless and defend Dr.
Hill, the other orthodontic and dental professionals employed by him and his
employees and/or his subcontractors up to the proceeds recovered from applicable
insurance policies provided pursuant to 5.2 hereof, from and against such
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent caused directly by or as a result of
the performance of any intentional acts, negligent acts or omissions by OMEGA,
the MSO and/or their affiliates and its and their respective shareholders,
agents, employees and/or subcontractors during the term hereof.
5.6 Notwithstanding anything to the contrary contained in this Agreement, or any
Schedule or Exhibit hereto, in no event shall the OMEGA or the MSO, their
officers, directors or employees be liable for any form of indirect, special,
incidental or consequential damages, including but not limited to loss of profit
or loss of business reputation, whether such damages arise in contract or tort,
irrespective of fault, negligence or strict liability.
6.0 General Provisions
6.1 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 or to Dr. Hill, 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 Dr. Hill shall be given as follows:
Jack A. Hill, D.D.S.
Jack A. Hill D.D.S. Inc.
4701 Westgate Blvd.
Austin, Texas 78745
Attn: Jack A. Hill, D.D.S.
or such other address as may be furnished by Dr. Hill to 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 or the MSO to Dr. Hill from
time to time in writing.
6.2 Contract Modifications for Prospective Legal Events. In the event any
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to Dr. Hill or the Orthodontic Practice (collectively, "Laws"), now
existing or enacted or promulgated after the Commencement Date, 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, Dr. Hill and OMEGA 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 Dr. Hill and
OMEGA and the MSO.
6.3 Remedies. The remedies specified in this Agreement are the exclusive
remedies for any liabilities arising under this Agreement. The limitations on
liability, releases from liability, and waiver and indemnity provisions
expressed in this Agreement shall apply to the full extent permitted by law,
even in the event of the fault, negligence (in whole or in part), strict
liability, or other basis of liability, and whether liability is founded in
contract, tort, or otherwise.
6.4 No Obligation to Third Parties. None of the obligations and duties of OMEGA
or Dr. Hill under this Agreement shall in any way or in any manner be deemed to
create any obligation of OMEGA or of Dr. Hill to, or any rights in, any person
or entity not a party to this Agreement.
6.5 Entire Agreement. This Agreement, including the Schedules hereto, and the
Agreement in Principle 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. 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.
6.6 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 OMEGA shall be permitted to assign its rights and obligations
hereunder without the consent of Dr. Hill to any person, firm or corporation
controlled by OMEGA, controlling OMEGA or under common control with OMEGA.
6.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, excluding its conflict of laws
rules. The parties acknowledge that OMEGA 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 OMEGA 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 OMEGA shall be deemed
waived and forever unenforceable and the provisions of Section 6.11 shall be
applicable.
6.8 Force Majeure. 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 reasonable control for so long as such events
continue, and for a reasonable period of time thereafter. The party claiming the
benefit of any such event of force majeure shall give the other party prompt
written notice of the occurrence thereof and shall use its best efforts to
terminate, or overcome the effects of, such force majeure at the earliest
possible date.
6.9 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.
6.10 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.
6.11 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.
6.12 Captions. Captions to sections in this Agreement are for ease of reference,
and shall not be considered an interpretation of the section.
6.13 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.
Jack A. Hill, D.D.S.
-------------------------------
Jack A. Hill D.D.S.
OMEGA ORTHODONTICS, INC.
By:________________________
Name: Edward Mulherin
Title: Chief Financial Officer
<PAGE>
SCHEDULE 1
DUTIES OF OMEGA
1.1 General. OMEGA, through its operating subsidiary the MSO, shall provide the
Orthodontic Practice with comprehensive practice management, financial and
marketing services and manage such facilities, equipment, and support personnel
as are currently available to the Orthodontic Practice and reasonably required
to operate the Orthodontic Practice at the Orthodontic Offices, as determined by
OMEGA in consultation with Dr. Hill. OMEGA may perform some or all of its
services at a location other than at the Orthodontic Offices.
1.2 Orthodontic Office Services. OMEGA, through the MSO, shall manage the office
space and related leasehold improvements to constitute the Orthodontic Offices
and related fixtures, furniture, furnishings, equipment and related services.
OMEGA shall be responsible for repairs, maintenance and replacement of the
Orthodontic Offices, except for repairs, maintenance and replacement to the
extent necessitated by the negligence of Dr. Hill, his employees and agents.
OMEGA shall provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
1.3 Administrative Services. OMEGA shall manage secretarial, reception,
maintenance, front office, skilled assistants and other personnel, except duly
licensed orthodontic and dental professionals, during normal office hours as
reasonably requested by Dr. Hill, to enable Dr. Hill to perform effectively
orthodontic and treatment services. OMEGA shall be responsible for staff
scheduling, provided, however, that all orthodontic and dental professionals,
including orthodontic assistants and hygienists, shall be under the direct
supervision of Dr. Hill and Dr. Hill shall have sole authority to employ and
terminate the employment of all orthodontic and dental professionals. All
personnel placed in the Orthodontic Offices by OMEGA shall be subject to the
approval of Dr. Hill, which approval shall not be unreasonably withheld, and Dr.
Hill shall have the authority to instruct OMEGA to terminate the employment of
such personnel for any lawful reason. OMEGA shall be responsible for all
personnel wages, withholding, fringe benefits, bonuses and workers' compensation
insurance in connection with its employees; provided, however, that Dr. Hill is
in full compliance with the compensation provisions of this Agreement.
1.4 Business Systems, Procedures and Forms. In consultation with Dr. Hill, OMEGA
shall establish standardized business systems and procedures for the Orthodontic
Practice, 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 Orthodontic Practice operating efficiency. OMEGA
shall additionally provide the Orthodontic Practice with and train the
Orthodontic Practice's staff in the use of standardized clinical forms,
including, without limitation, forms for patient evaluations and treatment
plans. Dr. Hill expressly acknowledges and agrees that he 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 2.7 of Schedule 2 and be subject to the restrictions on the
use, appropriation, and reproduction of such Confidential Information provided
for in such Section 2.7.
1.5 Purchasing, Accounts Payable, Supplies and Inventory. OMEGA 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 Orthodontic Practice. OMEGA
shall order and purchase and maintain all inventory and orthodontic supplies as
reasonably required by the Orthodontic Practice to enable Dr. Hill to render
orthodontic care to his patients including, without limitation, all orthodontic
appliances and other supplies, laboratory supplies and sanitation supplies
1.6 Billing, Collection. OMEGA shall supervise the: (i) billing and collecting
payments for all orthodontic and other professional services rendered by Dr.
Hill and the other orthodontic and dental professionals employed by Dr. Hill,
with all such billing and collecting to be done in the name of Dr. Hill; (ii)
receiving payments from patients, insurance companies and all other third party
payors; (iii) taking possession of and endorsing in the name of Dr. Hill 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 OMEGA and consented to
(which consent shall not be unreasonably withheld or delayed) by Dr. Hill,
assigning such accounts receivable to a collection agency or the bringing of a
legal action against a patient or a payor on Dr. Hill 's behalf. In supervising
the seeking of payments on behalf of Dr. Hill hereunder, OMEGA shall act as Dr.
Hill 's agent in billing and collecting professional fees, charges and other
accounts owed to Dr. Hill and shall only bill under Dr. Hill 's provider number.
OMEGA does not guarantee collection and is not responsible for any loss to Dr.
Hill as a result of any inability to collect fees and charges.
1.7 Disbursement of Funds. Dr. Hill shall create and maintain an accurate, up to
date, log of all monies collected by Dr. Hill commencing on the Commencement
Date. All such monies shall be deposited into an account (the "Orthodontic
Practice Account") with a bank whose deposits are insured with the Federal
Deposit Insurance Corporation and which bank is acceptable to OMEGA and Dr. Hill
(the "Bank"). The Orthodontic Practice Account shall contain the name of the Dr.
Hill, however, the account shall explicitly specify that only Omega shall be
entitled to make all disbursements therefrom. Omega shall account for all monies
so disbursed from the Orthodontic Practice Account.
From the funds collected and deposited by Dr. Hill in the Orthodontic Practice
Account, Omega shall make for and on behalf of Dr. Hill the following
disbursements promptly, when payable:
(1) Compensation and other direct costs payable to Dr. Hill pursuant to Schedule
3 of this Agreement; and
(2) All compensation payable to Omega pursuant to Schedule 3 of this Agreement.
1.8 OMEGA Expenses. OMEGA shall be responsible for the payment of all OMEGA
Expenses, as defined below, during the term of this Agreement.
(a) "OMEGA Expenses" shall mean all operating and non-operating
expenses incurred in the operation of the Orthodontic Practice, including,
without limitation: (1) Salaries, benefits and other direct costs of all
employees of OMEGA providing services to the Orthodontic Practice hereunder; (2)
Salaries, benefits and other direct costs of all employees of Dr. Hill at the
Orthodontic Practice (other than Dr. Hill and the other orthodontic and dental
professionals employed by Dr. Hill), provided, however, that any and all
payments to such employees of Dr. Hill after the Commencement Date but which are
compensation for services rendered by such employees prior to the Commencement
Date shall not be OMEGA Expenses and, to the extent they are paid by OMEGA,
OMEGA shall be entitled to offset such amounts against any amounts to be paid by
OMEGA to Dr. Hill pursuant to Schedule 3 of this Agreement; (3) Direct costs of
all employees or consultants of OMEGA who provide services at the Orthodontic
Offices or in connection with the Orthodontic Practice 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 Orthodontic Practice (not including payroll, "Accounts Payable")
which have accrued not more than 30 days prior to the Commencement Date and
which remain unpaid as of such time, but only to the extent that such Accounts
Payable do not exceed one-quarter (1/4) of one "Average" month of cash receipts
of the Orthodontic Practice (the term "Average" shall mean an average of the
cash receipts of the Orthodontic Practice using the last 12 months prior to the
end of the month immediately preceding the Commencement Date); (5) All direct
costs associated with operating the Orthodontic Offices, including without
limitation, utilities, cleaning and maintenance; (6) Obligations of OMEGA 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; (7) Personal property and intangible taxes assessed against OMEGA's
assets used in connection with the operation of the Orthodontic Offices,
commencing on the Commitment Date; (8) In the event an opportunity arises for
additional orthodontists to become employed by Dr. Hill at the Orthodontic
Practice or other orthodontic practices to merge with the Orthodontic Practice,
actual out-of-pocket expenses of OMEGA personnel working on a specified
employment arrangement or merger, whether or not such employment arrangement or
merger is consummated; (9) All other expenses incurred by OMEGA in carrying out
its obligations under this Agreement, but excluding any corporate overhead costs
of OMEGA or any corporation affiliated with OMEGA not specifically listed above.
(b) "OMEGA Expenses" shall not include: (1) Any Federal, state or local
income taxes of Dr. Hill and the other orthodontic and dental professionals
employed by Dr. Hill, or the costs of preparing Federal, state or local tax
returns thereof; (2) Salaries, benefits and other direct costs of employing Dr.
Hill and the other orthodontic and dental professionals employed by Dr. Hill;
(3) Physician licensure fees, board certification fees and costs of membership
in professional associations and societies for Dr. Hill and the other
orthodontic and dental professionals employed by Dr. Hill; (4) Professional
liability insurance for Dr. Hill and the other orthodontic and dental
professionals employed by Dr. Hill as provided for under Section 2.6 of Schedule
2 to this Agreement; (5) Costs of continuing professional education for Dr. Hill
and the other orthodontic and dental professionals employed by Dr. Hill
including travel and related expenses; (6) Costs associated with legal,
accounting and professional services incurred by or on behalf of Dr. Hill; (7)
Liability judgments assessed against Dr. Hill or the other orthodontic and
dental professionals employed by Dr. Hill in excess of policy limits or within
the deductible limits of any policy; (8) Direct personal expenses of Dr. Hill
and the other orthodontic and dental professionals employed by Dr. Hill of a
kind which Dr. Hill may have historically provided or charged to such
professionals (including, but not limited to, car allowances and other expenses
which are personal in nature); (9) Charitable contributions by Dr. Hill; and
(10) Any other expenses which are expressly designated herein as expenses or
responsibilities of Dr. Hill.
1.9 Accounting; Bookkeeping and Reports. OMEGA shall provide for or arrange for
all accounting and bookkeeping services related to the Orthodontic Practice's
operations, provided that such services are incurred in the ordinary course of
business. In addition, OMEGA shall provide Dr. Hill 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 OMEGA's internal statements. Dr. Hill shall be responsible for
preparing and filing his own Federal, state and local tax returns. At Dr. Hill
's request, OMEGA shall prepare reports indicating the gross revenues, number of
patients, type of patients, and the activity and the productivity of the
Orthodontic Practice. OMEGA shall assist and advise Dr. Hill in the financial
management of the Orthodontic Practice.
1.10 Maintenance and Cleaning Services. OMEGA shall arrange for security,
maintenance and cleaning of the Orthodontic Offices, including the furniture,
fixtures and equipment therein.
<PAGE>
SCHEDULE 2
DUTIES OF DR. HILL
2.1 General. Dr. Hill shall be responsible for the management of his practice
and the Orthodontic Office, in accordance with the requirements of the Laws of
the State.
2.2 Employment of the orthodontists and Rendering of Patient Care. Dr. Hill
shall be responsible for the employment and professional supervision of Dr. Hill
and all other orthodontic and dental professionals employed by him and all
orthodontic care rendered to patients shall be rendered by Dr. Hill and such
professionals.
2.3 Professional Services. Dr. Hill shall comply with all applicable Laws and
all standards of orthodontic care. Dr. Hill shall provide professional services
to patients hereunder in compliance at all times with ethical standards and Laws
applying to the orthodontic profession. Dr. Hill shall ensure that he 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. Hill or any orthodontic or dental professional
employed by Dr. Hill. Dr. Hill shall immediately inform OMEGA of such action and
the underlying facts and circumstances subject to such confidentiality agreement
or arrangements as Dr. Hill and OMEGA shall mutually determine at or prior to
the time of such disclosure. Dr. Hill agrees to cooperate with and participate
in quality assurance/utilization review programs established by OMEGA 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 OMEGA, and
appropriate steps shall be taken by Dr. Hill at once to remedy such
deficiencies.
2.4 Records. Dr. Hill 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 OMEGA,
on behalf of Dr. Hill to obtain payments for services and related charges and to
facilitate the delivery of quality patient care by Dr. Hill. Notwithstanding the
foregoing, patient dental records shall be and remain the property of Dr. Hill
and the contents thereof shall be solely the responsibility of Dr. Hill.
2.5 Professional Expenses. Dr. Hill 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 Dr.
Hill and the other orthodontic and dental professionals employed by him. Dr.
Hill shall ensure that he and the other orthodontic and dental professionals
employed by him participate in such continuing education as is necessary for Dr.
Hill and such professionals to remain current.
2.6 Professional Liability Insurance. Dr. Hill 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 Section 6 of
this Agreement. Dr. Hill shall also cooperate in any programs recommended by
OMEGA to assure that each of the orthodontic and dental professionals employed
by him is insurable, and that Dr. Hill and each such professional participates
in an on-going risk management program.
2.7 Confidentiality. Dr. Hill agrees and acknowledges that all materials
provided by OMEGA to Dr. Hill or the Orthodontic Practice constitute
"Confidential Information" and are disclosed in confidence and with the
understanding that it constitutes valuable business information developed by
OMEGA with the assistance of OMEGA at great expenditures of time, effort and
money. Dr. Hill further agrees that he shall not, directly or indirectly,
without the express prior written consent of OMEGA, use or disclose such
Confidential Information for any purpose other than in connection with the
services to be rendered hereunder. Dr. Hill 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 his affiliates,
partners, employees and independent contractors without the express prior
written consent of OMEGA; and (ii) to impose this obligation of confidentiality
on his partners, employees and independent contractors. Dr. Hill acknowledges
that the disclosure of Confidential Information to him by OMEGA is done in
reliance upon his representations and covenants in this Agreement. Upon
expiration or termination of this Agreement by either party for any reason
whatsoever, Dr. Hill shall immediately return and shall cause his partners,
shareholders and independent contractors to immediately return to OMEGA all
Confidential Information, and Dr. Hill will not, and will cause his partners,
employees and independent contractors not to, thereafter use, appropriate, or
reproduce such Confidential Information. Dr. Hill 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 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, OMEGA, in
addition to any other remedies or damages available to OMEGA, shall be entitled
to injunctive or other equitable relief without the necessity of proving actual
damages but such rights to relief shall not preclude OMEGA from other remedies
which may be available to it hereunder.
<PAGE>
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
OMEGA 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 Dr.
Hill shall be entitled to twenty-five Percent (25%) of the Practice Revenues,
except as the parties may otherwise agree from time to time in writing.
Notwithstanding the foregoing, in no event shall OMEGA receive less than fifteen
(15%) percent calendar quarter as compensation for its management services
("Minimum Management Services Fee"). At the end of each calendar quarter during
the term of this Agreement, OMEGA shall provide Dr. Hill with an unaudited
internal accounting of OMEGA Expenses, prepared in accordance with the accrual
method of accounting. In addition, if OMEGA Expenses as reflected in such
accounting as having been paid by OMEGA are less than sixty (60%) percent of the
Practice Revenues for such calendar quarter, sixty five (65%) percent of such
difference shall be returned by OMEGA to Hill as a profit incentive rebate (the
"Rebate"). If such OMEGA Expenses are more than sixty (60%) percent of the
Practice Revenues for such calendar quarter, sixty-five (65%) percent of such
excess will be charged to Dr. Hill and recorded as a liability to be set off
against future Rebates or utilized as payment of OMEGA's Minimum Management
Services Fee if Practice Revenues are insufficient provided, however, that the
full amount of such liability shall be paid to OMEGA 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 OMEGA based on all Practice Revenue collected as of the date of
termination or expiration.
Payment to OMEGA shall be made in monthly installments based on the
Practice Revenues realized by OMEGA for services rendered hereunder. OMEGA shall
distribute the proceeds received from the Orthodontic Practice's Account and
allocate the proceeds between OMEGA and Dr. Hill 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 Orthodontic
Practice (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 Dr. Hill and for any other goods
or services sold or provided to such patients.
MANAGEMENT SERVICES AGREEMENT
BETWEEN
Dennis E. Holt, P.C.
(the "New PC")
AND
Omega Orthodontics of Woodland Hills, Inc.
(the "MSO")
AND
Omega Orthodontics, Inc.
("OMEGA")
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MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM................................................................1
ARTICLE 2 DUTIES OF THE MSO...................................................1
2.1 General....................................................................1
2.2 Endodontic Office Services.................................................1
2.3 Administrative Services....................................................1
2.4 Business Systems, Procedures and Forms.....................................1
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control...............1
2.6 Regulatory Compliance Services.............................................1
2.7 Billing, Collection........................................................1
2.8 Disbursement of Funds......................................................1
2.9 MSO Expenses...............................................................1
2.10 INTENTIONALLY BLANK.......................................................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...............................9
ARTICLE 3 DUTIES OF THE NEW PC...............................................10
3.1 General...................................................................10
3.2 Employment of the Endodontists 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
3.8 Confidentiality...........................................................12
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION, APPROVAL OF
ADVERTISING MATERIAL AND NO RECIPROCATION..........................13
4.1 Fundamental Understanding.................................................13
4.2 No Solicitation; Control..................................................13
4.3 No Advertising............................................................13
4.4 No Referrals..............................................................13
ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT...........................14
5.1 Office Lease/Sublease.....................................................14
5.2 Leasehold Improvements, etc...............................................15
5.3.No Warranty...............................................................16
ARTICLE 6 COMPENSATION.......................................................16
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.............................................19
9.1 Insurance to be Maintained by the New PC..................................19
9.2 Insurance to be Maintained by the MSO.....................................20
9.3 Tail Insurance Coverage...................................................20
9.4 Additional Insureds.......................................................20
9.5 Indemnification...........................................................20
ARTICLE 10 TERMINATION.......................................................21
10.1 Termination by the New PC................................................21
10.2 Termination by MSO.......................................................21
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................23
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................24
ARTICLE 13 MISCELLANEOUS.....................................................24
13.1 Access to Records........................................................24
13.2 Patient Records..........................................................24
13.3 The New PC's Control Over the Endodontic Practice........................24
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.....................................25
14.1 Alternative Dispute Resolution...........................................25
14.2 Waiver of Jury...........................................................26
ARTICLE 15 GENERAL PROVISIONS................................................26
15.2 INTENTIONALLY OMITTED....................................................27
15.3 Contract Modifications for Prospective Legal Events......................27
15.4 Exclusive Remedies.......................................................27
15.5 No Obligation to Third Parties...........................................27
15.6 Entire Agreement.........................................................27
15.7 Assignment...............................................................28
15.8 INTENTIONALLY OMITTED....................................................28
15.9 Governing Law............................................................28
15.10 Events Excusing Performance.............................................28
15.11 Compliance with Applicable Laws.........................................29
15.12 Language Construction...................................................29
15.13 Amendments..............................................................29
15.14 Severability............................................................29
15.15 No Waiver...............................................................29
15.16 Captions................................................................29
15.17 Counterparts............................................................29
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 AGREEMENT
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
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MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 1st day of August, 1998, by and
between Dennis E. Holt, P.C., a professional corporation (the "New PC")
incorporated under the laws of the State of Oregon (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
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 Dennis E. Holt, D.D.S., M.S. ("Dr. Holt") 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 May 1, 1998, pursuant to which OMEGA acquired certain assets of Dr.
Holt;
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. Holt
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 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. Holt 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 and subject to consultation with the New
PC. 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 at all
times 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. Holt 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,
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, 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 non-endodontic 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 other matters not
directly related to services provided by the MSO hereunder or its compliance
with Laws, or for any legal or tax advice or services or personal financial
services to Dr. Holt 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, however, only the MSO shall be entitled to
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 or Dr. Holt 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. Holt 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 (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 such operating and non-operating expenses incurred
by the MSO in performing its services, 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. Holt
and all the Endodontists (if any) and other Practice Providers);
(2) Direct costs associated with operating the Endodontic Offices,
including without limitation, utilities, cleaning and maintenance,
including maintenance of the interior, exterior and grounds of the
Endodontic offices as provided in the Master Lease;
(3) 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;
(4) 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;
(5) 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;
(6) 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. Holt
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. Holt 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;
(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 INTENTIONALLY BLANK
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. Holt 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, but not
including professional liability insurance (which shall be and remain the
responsibility of the New PC).
2.19 Practice Transition and Associate Selection. Dr. Holt and the Endodontists
(if any) shall keep the MSO informed of retirement goals on an ongoing basis;
provided, however, that Dr. Holt shall, at a minimum, 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. Notwithstanding
the foregoing, Dr. Holt may, after a period of four (4) years following the date
of this Agreement, notify the MSO of his intent to retire. Upon receiving such
notice, the MSO shall have a period of two (2) years to conduct a search for an
appropriate endodontist and other professionals (collectively, "Practice
Associates") who will assume the MSO Agreement. Such search shall include use by
the MSO of a national journal advertising program and networking in the
profession to locate appropriate Practice Associates. If at the end of such two
(2) year period the MSO has been unable to find a replacement who will undertake
the practice and the MSO Agreement, then the MSO and Dr. Holt shall work
together for a period of one (1) year to find an endodontist who will purchase
the practice valued as if it were a traditional (i.e. not operated with a MSO)
practice holding both the clinical and non-clinical assets. At the end of such
one (1) year period, the MSO shall sell the practice to the highest offer made
by a bona fide purchaser. Upon completion of such transfer of the New PC, Dr.
Holt, the MSO and OMEGA shall provide mutual releases of liability in a form
acceptable to all parties.
It is understood and agreed that Dr. Holt shall continue to work during the
practice transition period and Dr. Holt shall work under the MSO agreement for a
minimum for seven (7) years in total unless a successor is designated pursuant
to this Agreement. However, in no event shall Dr. Holt be obligated to work
under the MSO agreement for longer than seven (7) years.
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 operation 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. Holt
and all Endodontists and the other Practice Providers and all endodontic care
rendered to patients shall be rendered by Dr. Holt and such Endodontists.
Additionally, the New PC shall be solely 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. Holt and the Endodontists and the other Practice
Providers acting under the supervision and control of Dr. Holt 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. Holt 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. Holt 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. Holt and all the Endodontists employed by the New PC participate
in such continuing education as is necessary for Dr. Holt 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. Holt
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. Holt and each Endodontist associated with the New PC
devote their full time and attention (which shall mean an average of not less
than fourteen (14) full days per month), unless other specific provisions are
made in writing and mutually agreed upon by the MSO and New PC. The New PC will
cause Dr. Holt 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. Holt 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. Holt's or such Endodontist's employment
shall terminate for any reason (other than a material 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. Holt's or such Endodontist's Employment
Agreement with the New PC, Dr. Holt 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. Holt'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. Holt'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) Thirty
five (35%) percent of the preceeding years Gross Practice Revenues. Such payment
shall be made to the MSO by the New PC immediately following receipt of the
payment from Dr. Holt 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. Holt 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. Holt
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. Holt 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. Holt 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. Holt 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 Fundamental Understanding. 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 Solicitation; Control. 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. 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 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.
<PAGE>
ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 Office Lease/Sublease. 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 hereby agrees to enter into a mutually acceptable lease with the
owner of such property for the premises currently 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 amount of rent to be paid by
the MSO shall not be greater than $1.50 per square foot exclusive of property
taxes, Insurance and maintenance. The New PC hereby acknowledges that the
premises to be leased 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 Leasehold Improvements, etc. In accordance with Article 2.2 hereof, 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) Subject to the terms of the lease, 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) Subject to the terms of the lease, 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,
without interest, 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. Holt 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. Holt 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 and provided for waivers of insurers rights of subrogation in favor
of the MSO and OMEGA. The New PC agrees to deliver to the MSO and OMEGA a
certificate of insurance indicating such coverage. In the event that naming the
MSO as an additional insured results in extra cost to the New PC, then the MSO
shall reimburse the New PC for such cost.
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 the
MSO shall provide (b) comprehensive general liability and property insurance
covering the Endodontic Office premises and operations. Such insurances shall
provide for waivers of insurers rights of subrogation in favor of Dr. Holt and
each of the Endodontists providing services for the New PC.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Holt and each Endodontist
(if any) providing services to enter into an agreement with the New PC that upon
termination of Dr. Holt's or such Endodontist's relationship with the New PC,
for any reason, tail insurance coverage will be purchased by Dr. Holt 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. Holt 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. Holt 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 and obtain appropriate waivers of
insurers rights of subrogation. In the event that naming the MSO as an
additional insured results in extra cost to the New PC, then the MSO shall
reimburse the New PC for such cost.
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.
9.6 Notwithstanding anything to the contrary contained in this Agreement, or any
Schedule or Exhibit hereto, in no event shall Dr. Holt, the New PC, the MSO or
OMEGA or their officers, directors or employees be liable for any form of
indirect, special, incidental or consequential damages, whether such damages
arise in contract or tort, irrespective of fault, negligence or strict
liability.
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 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 and recover such direct damages
actually incurred by Dr. Holt as a result of such termination.
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. Holt)
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. Notwithstanding the foregoing, the parties understand and agree
that in no event shall the retirement of Dr. Holt 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. Holt or any Endodontist breaches or defaults under his or
her Employment Agreement and the New PC does not cause Dr. Holt or such
Endodontist to cure such breach or default within any applicable grace period
therefor but not less than sixty (60) days, 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 have the
option to either (1) 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 or (2) Omega may terminate this Agreement and bring in a replacement
to take over the practice. If this Agreement is terminated by the MSO or Omega,
Dr. Holt shall be bound by the terms of the non-compete agreement attached as
Exhibit C to the Stock Put/Call 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 and recover such
direct damages actually incurred by OMEGA or the MSO as a result of such
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.
Upon termination of this agreement or upon a breach of this agreement by the MSO
which is not remedied within any applicable cure period, but not less than sixty
(60) days, Dr. Holt may, upon notice to the MSO and OMEGA, revoke all powers of
attorney granted to the MSO or OMEGA.
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. Holt 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
DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution.
(a) If during the term of this Agreement a dispute arises between the parties,
or one party perceives the other as acting unfairly or unreasonably, or a
question of interpretation arises hereunder, then the parties' shall promptly
confer and exert their best efforts in good faith to reach a reasonable and
equitable resolution of the issue.
If resolution cannot be reached by the parties within thirty (30) days as set
forth above, then any controversy or claim arising out of this Agreement of an
aggregate amount less than $250,000 not resolved pursuant to the above shall be
settled by arbitration under the rules or the American Arbitration Association's
Rules. Judgment upon any award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. Any arbitration decision awarding an
amount less than $250,000 shall be final and binding upon the parties. Amount
awarded in excess of $250,000 shall be appealable to a court in accordance with
Article 15.9 hereof. Any arbitration proceeding shall be filed in the office of
the American Arbitration Association located in Portland, Oregon and conducted
in Bend, Oregon. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The arbitrator, shall be bound by the
terms and conditions of this Agreement and shall not have the authority to award
multiple, punitive or consequential damages under any circumstances.
For claims exceeding $250,000, either Party may, at its option, elect to have
any dispute adjudicated by either arbitration in accordance with Article 15.9
hereof.
(b) In the event of a disagreement concerning the calculation of any fees by
either party, the parties agree to accept as correct, final and binding, the
determination of an independent certified public accountant (CPA) selected by
the mutual agreement of the parties. If the parties cannot agree upon the
selection of a CPA within thirty (30) days after a written request for a CPA's
selection, then the requesting party shall deliver a list of five (5) CPAs ( at
least two of which are a member of the "Big Six" accounting firms). Upon receipt
of such list, the other party shall select one of such five firms as the CPA. If
no selection is made, the requesting party may select one from the list of five
and notify the other party of such choice. The cost of the CPA's review shall be
born by the requesting party unless the CPA determines that the requesting party
was under paid by more than two (2%) percent in which event the parties shall
split such cost. In the event such under payment is greater than ten (10%)
percent, the other party shall pay all CPA costs. Each party agrees to cooperate
fully with the CPA in connection with its review.
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. Holt, to:
Dennis E. Holt, D.D.S., M.S.
1590 N.E. Williamson Boulevard
Bend, Oregon 97701
CC:
Kevin J. Keillor
747 SW Industrial Way
Bend, Oregon 97702
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
management 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. Neither party shall be
deemed to be in breach of this agreement by reason of a violation of such Laws
as described above unless such party had actual knowledge of such violation as
of the effective date of this Agreement.
15.4 Exclusive Remedies. The remedies specified in this Agreement are the
exclusive remedies for liabilities of the parties arising under this Agreement.
The limitations on liability, releases from liability, and waiver and indemnity
provisions expressed in this Agreement shall apply to the full extent permitted
by law, even in the event of a parties' fault, negligence (in whole or in part),
strict liability, or other basis of liability, and whether liability is founded
in contract, tort, or otherwise, and shall extend to the parties and its
affiliated companies and its and their shareholders, directors, officers,
employees, agents, subcontractors, and suppliers.
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
or to such financing institutions as may be required by the terms of credit
agreements which may be entered into from time to time by Omega for the
obtaining of addition financing for Omega.
15.8 INTENTIONALLY OMITTED.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oregon, irrespective of its conflict of
laws rules. The parties agree to submit to the jurisdiction of any state or
federal court located in Bend, Oregon. 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
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.
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:
[Insert Name of New PC]
By:_______________________________
Name: Dennis E. Holt, D.D.S., M.S.
Title: President
MSO:
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
By:_______________________________
Name: Robert J. Schulhof
Title: President
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name: Robert J. Schulhof
Title: President
<PAGE>
SCHEDULE 1
THE ENDODONTISTS
Name and Address
Dennis E. Holt, D.D.S., M.S.
1590 N.E. Williamson Boulevard
Bend, Oregon 97701
<PAGE>
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 1590 N.E. Williamson Boulevard,
Bend, Oregon 97701. 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.
<PAGE>
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, (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
$5,000 commencing on the effective date of this Agreement. 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
fifteen (15%) percent of the Practice Revenues 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 financial quarter during the Term, the
MSO shall provide the New PC with an unaudited internal accounting of the MSO
Expenses actually incurred for such quarter, 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 financial quarter, 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 financial quarter, 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.
<PAGE>
EXHIBIT A
ENDODONTIC OFFICES - MASTER LEASE
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
Dennis E. Holt, D.D.S., M.S.
1590 N.E. Williamson Boulevard
Bend, Oregon 97701
<PAGE>
EXHIBIT C
New PC'S AFFIDAVIT
<PAGE>
AFFIDAVIT
I, Dennis E. Holt, D.D.S., M.S., declare:
I am an endodontist, duly licensed in the State of Oregon and I
practice through a professional corporation under the name [Insert Name of New
PC] (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 ________, 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-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 1590 N.E. Williamson Boulevard, Bend, Oregon 97701
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
$5,000 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.
<PAGE>
I declare under penalty of perjury that the foregoing statement is true and
correct to the best of my knowledge and belief.
Executed at Bend, Oregon this ____ day of ________ 1998.
---------------------------
Dennis E. Holt, D.D.S., M.S.
STATE OF OREGON
___________________, ss. January ___, 1998
Then personally appeared the above-named Dennis E. Holt, D.D.S., M.S. and
acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 1st day of January 1998, by
[Insert Name of New PC]., an Oregon corporation (the "New PC"), and Dennis E.
Holt, D.D.S., M.S. ("Dr. Holt") who is duly licensed to practice endodontics 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. Holt 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 Oregon (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:
1590 N.E. Williamson Boulevard
Bend, Oregon 97701
Attn: Dennis E. Holt, D.D.S., M.S.
CC:
Kevin J. Keillor
747 SW Industrial Way
Bend, Oregon 97702
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:
Dennis E. Holt, P.C. OMEGA ORTHODONTICS OF
WOODLAND HILLS, INC.
By:____________________________ By:__________________________
Name: Dennis E. Holt, D.D.S., M.S. Name: Robert J. Schulhof
Title: President Title: President
DR. HOLT
- -------------------------------
Dennis E. Holt, D.D.S., M.S.
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 August, 1998 by and among
Dennis E. Holt, P.C. a professional corporation (the "New PC") incorporated
under the laws of the State of Oregon (the "State"); Dennis E. Holt, D.D.S.,
M.S. ("Dr. Holt") who is duly licensed to practice endodontics in the State;
Omega Orthodontics, Inc., a Delaware corporation ("OMEGA"); and Omega
Orthodontics of Woodland Hills, Inc., a Delaware corporation (the "MSO"), which
is a wholly-owned subsidiary of OMEGA, with reference to the following facts.
RECITALS
A. OMEGA is an orthodontic 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. Holt pursuant to that certain
Affiliation Agreement and Asset Purchase Agreement (the "Affiliation Agreement")
dated as of May 1, 1998 by and between OMEGA and Dr. Holt.
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. Holt
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-endodontic business affairs of
the New PC.
E. Dr. Holt 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. Holt'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. Holt has agreed to grant to the MSO, and the MSO desires to acquire from Dr.
Holt 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.
Holt, 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 the greater of the fair market
value or the 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 the
greater of the fair market value or 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. Holt 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. Holt 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"). It is understood and agreed that Dr.
Holt will continue to be bound by the terms of the non-competition agreement
attached hereto as Exhibit C.
Notwithstanding the foregoing, in the event of Dr. Holt, neither Omega nor the
MSO shall be entitled to exercise the Put Option against Dr. Holt's estate.
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 and intangibles, 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.
Holt 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, such; 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. 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 lesser of the fair market
value or the amortized book 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.
In addition to the foregoing, If Dr. Holt exercises the Call Option prior to the
registration of the Omega Stock held by Dr. Holt as a result of the Affiliation
Agreement and Asset Purchase Agreement dated May 1, 1998 by and between the
parties, then Dr. Holt may, at his option, tender such stock then held by him to
Omega, at the price it was originally granted to him. The foregoing shall not
apply once such Stock is registered. Further, if Dr. Holt exercises the Call
Option within two (2) years of the Effective date of this agreement, then Omega
shall refund to Dr. Holt sixty-five (65%) percent of the net management fees
actually received by Omega during the term of the MSO Agreement.
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 and the MSO is not paying the MSO Expenses (as
defined in the Management Services Agreement) as they become due such that the
ability of the New PC to continue to practice endodontics is compromised, the
Call Option may be exercised by the payment by the New PC to the MSO of the sum
of (i) the book value of the assets described in Clause (a) of this Section 3
plus (ii) the book value of the assets described in Clause (b) of this Section
3, less an amount equal to two-thirds (2/3) of the difference between (y) all
management fees paid by the New PC to the MSO pursuant to Schedule 3 of the
Management Services Agreement less (z) the sum of all the MSO Expenses paid by
the MSO under the Management Services Agreement plus the Rebates paid to the New
PC pursuant to Schedule 3 of the Management Services Agreement; provided,
however, that the amount due under clause (ii) of this sentence shall not be
less than zero.
4. Closing and Delivery. At 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, the New PC shall pay cash,
or, at the option of the New PC and with the consent of Dr. Holt, a combination
of cash, forgiveness of amounts due to Dr. Holt under the Purchase Note and/or
return of the shares of Omega Common Stock received by Dr. Holt 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. Holt 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 or any portion of
the Capital Stock then held by Dr. Holt:
(i) the death of Dr. Holt;
(ii) if Dr. Holt 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. Holt 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. Holt 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. Holt becomes hospitalized for alcohol or drug
abuse;
(vi) if Dr. Holt is convicted of a felony;
(vii) if Dr. Holt 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. Holt'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. Holt 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. Holt 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. Holt and such involuntary petition, assignment or attachment is
not discharged within sixty (60) days after creation;
(xi) if Dr. Holt 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. Holt retires within the meaning of Paragraph (c)
of this Section 5; or
(xiii) if Dr. Holt desires to sell more than twenty five (25%)
percent 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 ninety (90) days, (i) prevents Dr. Holt from performing his
duties competently and adequately as determined by the MSO, or (ii)
substantially impairs the New PC's or Dr. Holt's ability to practice
endodontics.
(c) For purposes hereof, "Retirement" of Dr. Holt shall occur on the
date when Dr. Holt 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. Holt (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. Holt 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. Holt, Dr. Holt
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. Holt 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. If the sale of such
Capital Stock represents twenty five (25%) percent or less of the Capital Stock,
then, unless the MSO or OMEGA reasonably believes such Purchaser to be
unacceptable, such transfer shall not constitute a Transfer Event. If such sale
is greater the twenty five (25%) percent of the Capital Stock then 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. Holt 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. Holt 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. Holt 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. Holt (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 negotiable promissory note, secured by the Capital Stock
of the New PC. 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. Holt's Estate.
(i) Upon the death of Dr. Holt and receipt of notice of a
Successor Designation Exercise Notice, Dr. Holt's personal representative shall
apply for and obtain any necessary court approval or confirmation of the sale of
Dr. Holt's shares of Capital Stock pursuant to this Agreement. The
representative of the estate of Dr. Holt 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. Holt's spouse, if any, shall not be
considered the death of Dr. Holt for purposes of this Agreement.
(iii) The estate of Dr. Holt 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. Holt to transfer to the Designated Successor full legal
and equitable tax-free title to the Capital Stock of Dr. Holt.
(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. Holt hereby consents to the
acquisition and maintenance in force of a disability insurance policy and a life
insurance policy by the MSO and OMEGA on Dr. Holt ("Insurance Policies"). The
life insurance policy may be in an aggregate face amount of up to one times Dr.
Holt's income, as shown on the W-2 Form prepared by the New PC for the most
recent calendar year. Dr. Holt agrees, at the election of the MSO and OMEGA, to
take whatever actions are necessary to assist in the acquisition of any such
Insurance Policy by the MSO and OMEGA.
(b) The Insurance Policies shall name the MSO and OMEGA 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 and OMEGA shall pay all premiums falling due
on all such policies. Such payments shall be made by the MSO or OMEGA and shall
not be considered MSO expenses pursuant 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. Holt 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. Holt 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. Holt 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. Holt
shall execute and deliver to [Insert Name of Dr.'s counsel], 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. Holt. Upon execution of this
Agreement, Dr. Holt 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. Holt. 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 ______________, 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.
Holt 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.
Holt.
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. Holt, 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. Holt 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. Holt 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.
Holt 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 or to such financing institutions as may be required by the terms of
credit agreements which may be entered into from time to time by Omega for the
obtaining of addition financing for 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. Holt, to:
Dennis E. Holt, D.D.S., M.S.
1590 NE Williamson Boulevard
Bend, Oregon 97701
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 of Oregon.
(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. Holt 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) Remedies. The remedies specified in this Agreement are the
exclusive remedies for liabilities of the parties arising under this Agreement.
The limitations on liability, releases from liability, and waiver and indemnity
provisions expressed in this Agreement shall apply to the full extent permitted
by law, even in the event of a parties' fault, negligence (in whole or in part),
strict liability, or other basis of liability, and whether liability is founded
in contract, tort, or otherwise, and shall extend to the parties and its
affiliated companies and its and their shareholders, directors, officers and
employees.
18. Alternative Dispute Resolution.
18.1 General.
(a) If during the term of this Agreement a dispute arises between the
parties, or one party perceives the other as acting unfairly or unreasonably, or
a question of interpretation arises hereunder, then the parties' shall promptly
confer and exert their best efforts in good faith to reach a reasonable and
equitable resolution of the issue.
If resolution cannot be reached by the parties within thirty (30) days as set
forth above, then any controversy or claim arising out of this Agreement of an
aggregate amount less than $250,000 not resolved pursuant to the above shall be
settled by arbitration under the rules or the American Arbitration Association's
Rules. Judgment upon any award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. Any arbitration decision awarding an
amount less than $250,000 shall be final and binding upon the parties. Amount
awarded in excess of $250,000 shall be appealable to a court in accordance with
Article 15.9 hereof. Any arbitration proceeding shall be filed in the office of
the American Arbitration Association located in Portland, Oregon and such
arbitration shall be conducted in Bend, Oregon. Judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction. The
arbitrator, shall be bound by the terms and conditions of this Agreement and
shall not have the authority to award multiple, punitive or consequential
damages under any circumstances.
For claims exceeding $250,000, either Party may, at its option, elect to have
any dispute adjudicated by either arbitration in accordance with Article 15.9
hereof.
(b) In the event of a disagreement concerning the calculation of any fees by
either party, the parties agree to accept as correct, final and binding, the
determination of an independent certified public accountant (CPA) selected by
the mutual agreement of the parties. If the parties cannot agree upon the
selection of a CPA within thirty (30) days after a written request for a CPA's
selection, then the requesting party shall deliver a list of five (5) CPAs ( at
least two of which are a member of the "Big Six" accounting firms). Upon receipt
of such list, the other party shall select one of such five firms as the CPA. If
no selection is made, the requesting party may select one from the list of five
and notify the other party of such choice. The cost of the CPA's review shall be
born by the requesting party unless the CPA determines that the requesting party
was under paid by more than two (2%) percent in which event the parties shall
split such cost. In the event such under payment is greater than ten (10%)
percent, the other party shall pay all CPA costs. Each party agrees to cooperate
fully with the CPA in connection with its review.
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.
<PAGE>
IN WITNESS WHEREOF, the New PC, Dr. Holt, 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"
Dennis E. Holt, P.C.
an Oregon corporation
By: ______________________________
Dennis E. Holt, D.D.S., M.S., President
DR. HOLT
- ------------------------------
Dennis E. Holt, D.D.S., M.S.
"MSO"
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
a Delaware corporation
By: ______________________________
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:_______________________________
Robert J. Schulhof, President and
Chief Executive Officer
<PAGE>
SPOUSAL JOINDER AND CONSENT
I am the spouse of Dennis E. Holt, D.D.S., M.S., the sole Stockholder
of Dennis E. Holt, 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 ____________, 1998.
Signature:
Printed or Typed Name:
<PAGE>
EXHIBIT A
ENDODONTIC OFFICES
The offices and related leasehold improvements constituting the Endodontic
Offices are located at 1590 NE Williamson Boulevard, Bend, Oregon 97701.
<PAGE>
EXHIBIT B
STOCK
The authorized capital stock of the New PC is ____________ shares of common
stock, $______ par value per share. ___________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 Dennis E. Holt, D.D.S., M.S.
<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is made as of this ____ day of May,
1998 by and between Denis Holt, D.D.S., M.S. ("Dr. Holt"), who is duly licensed
to practice orthodontics in the state of Oregon, and Dennis E. Holt, P.C., 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 ____________, 1998 by
and among Dr. Holt, the New PC, Omega Orthodontics, Inc., a Delaware corporation
("Omega") and Omega Orthodontics of Woodland Hills, Inc., a Delaware corporation
(the "MSO") which is a wholly owned subsidiary of Omega.
RECITALS
A. Dr. Holt 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. Holt of his Capital Stock to
the Purchaser pursuant to Section 8 of the Stock Agreement, Dr. Holt 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. Holt's Covenants. During the term of this Agreement in the Service
Area described in Section 4 below, Dr. Holt shall not (directly or indirectly
through any business, enterprise, venture, partnership, corporation or any other
entity controlled directly or indirectly by Dr. Holt, 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. Holt'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. Holt or
any person employed or under contract to Dr. Holt (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. Holt, 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. Holt's Representations. Dr. Holt 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. Holt acknowledges that this
Agreement is subject to all representations, warranties and covenants of Dr.
Holt in the Stock Agreement.
3. Service Area. The Service Area to which Dr. Holt'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. Holt, 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. Holt's agreement not to compete and
other covenants herein, the New PC shall pay Dr. Holt 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. Holt of this Agreement, the
New PC shall be entitled to receive, on behalf of the MSO, from Dr. Holt, 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. Holts's income, as shown on
the W-2 form prepared by the New PC for the most recent calendar year or (b)
Thirty five (35%) percent of the preceding years Gross Practice Revenues. 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. Holt 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. Holt agrees that in such case, the New PC shall be entitled to
injunctive relief and Dr. Holt agrees not to assert in any proceeding that the
New PC has an adequate remedy at law. Dr. Holt 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 --------- 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. Holt: Dr. Dennis E. Holt, D.D.S., M.S.
1590 NE Williamson Boulevard
Bend, Oregon 97701
If to the New PC: Dr. Dennis E. Holt, D.D.S., M.S.
1590 NE Williamson Boulevard
Bend, Oregon 97701
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon
(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. Holt
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
the day and year first written above.
"DR. Holt" "NEW PC"
___________________ By: ___________________________
President
MANAGEMENT SERVICES AGREEMENT
BETWEEN
Clark E. Schneekluth, D.D.S., M.S., Inc.
(the "PC")
AND
Omega Orthodontics of Woodland Hills, Inc.
(the "MSO")
AND
Omega Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM...............................................................2
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..............4
2.6 Regulatory Compliance Services............................................4
2.7 Billing, Collection.......................................................5
2.8 Disbursement of Funds.....................................................5
2.9 MSO Expenses..............................................................6
2.10 Credit Reports...........................................................6
2.11 Accounting; Bookkeeping and Reports......................................8
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.....................................................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....................................................11
3.4 Records..................................................................11
3.5 Professional Expenses....................................................11
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
4.1 Fundamental Understanding................................................13
4.2 No Solicitation; Control.................................................14
4.3 No Advertising...........................................................14
4.4 No Referrals.............................................................14
ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT..........................14
5.1 Office Lease/Sublease....................................................14
5.2 Leasehold Improvements, etc..............................................15
5.3 No Warranty..............................................................16
ARTICLE 6 COMPENSATION......................................................16
ARTICLE 7 SECURITY INTEREST.................................................18
ARTICLE 8 COVENANTS.........................................................18
8.1 PC's Covenants...........................................................18
8.2 MSO's Covenants..........................................................19
ARTICLE 9 INSURANCE AND INDEMNITY............................................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......................................................20
9.5 Indemnification..........................................................21
ARTICLE 10 TERMINATION......................................................21
10.1 Termination by the PC...................................................21
10.2 Termination by MSO......................................................22
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY..........................23
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP..............................24
ARTICLE 13 MISCELLANEOUS....................................................24
13.1 Access to Records.......................................................24
13.2 Patient Records.........................................................24
13.3 The 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
15.2 INTENTIONALLY OMITTED...................................................27
15.3 Contract Modifications for Prospective Legal Events.....................27
15.4 Remedies................................................................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........................................29
15.12 Language Construction..................................................29
15.13 Amendments.............................................................29
15.14 Severability...........................................................29
15.15 No Waiver..............................................................29
15.16 Captions...............................................................29
15.17 Counterparts...........................................................29
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 PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENT
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 14th day of August, 1998, by and
between Clark E. Schneekluth, D.D.S., M.S., Inc., a professional corporation
(the "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").
Collectively the foregoing shall be called the "parties" and individually called
a "party".
WHEREAS, the parties have previously entered into a Management Services
Agreement for the management of Dr. Schneekluth's orthodontic practice located
at 511 Warner Avenue, Suite 104, Huntington Beach, California 92649 ("Original
Orthodontic Office"); and
WHEREAS, the parties have determined that it would be to their mutual advantage
to increase Dr. Schneekluth's orthodontic practice by each acquiring certain
assets of Dr. Richard A. Levin's orthodontic practice located at 5251 and 5253
Lampson Ave., Garden Grove, California ("New Orthodontic Offices") and merging
the Original Orthodontic Offices and the New Orthodontic Offices into one signal
orthodontic practices with two separate and distinct locations (hereinafter know
as the "Orthodontic Practices"); and
WHEREAS, the parties desire to enter into a new Management Services Agreement
covering the Orthodontic Practices which shall supercede the previous management
services agreement; and
WHEREAS, 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 are provided directly or indirectly through management
service organizations such as the MSO; and
WHEREAS, OMEGA and Clark E. Schneekluth, D.D.S. ("Dr. Schneekluth") who is duly
licensed to practice orthodontics in the State have entered into that certain
Affiliation Agreement and Stock Purchase Agreement (the "Affiliation Agreement")
dated as of August 14, 1998, pursuant to which OMEGA acquired certain stock and
assets of Dr. Schneekluth; and
WHEREAS, OMEGA and Richard A. Levin, D.D.S. ("Dr. Levin") have entered into that
certain Affiliation Agreement and Stock Purchase Agreement (the "Affiliation
Agreement") dated as of August 14, 1998, pursuant to which OMEGA acquired
certain assets of Dr. Levin; and
WHEREAS, the PC owns and operates an orthodontic practice with offices located
in the facilities identified in Exhibit A (the "Orthodontic Offices") and
furnishes orthodontic care to the general public through the services of Dr.
Schneekluth and any and all other Orthodontists who are or become affiliated
with the 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, the MSO's services are designed to improve the efficiency and
profitability of the PC while enhancing the ability of Dr. Schneekluth 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 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 of the PC otherwise elects upon six months written notice to the
other 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
orthodontic 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 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 orthodontic duties under this
Agreement, subject to the requirements of the applicable provisions of State law
relating to the practice of orthodontics and subject to consultation with the
PC. 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 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.
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 at all times 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. Schneekluth
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,
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
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. 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 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. 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, 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 non-orthodontic 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 other matters not directly related to services
provided by the MSO hereunder or its compliance with Laws, or for any legal or
tax advice or services or personal financial services to Dr. Schneekluth 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 "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, however, only the MSO shall be entitled to 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 or Dr. Schneekluth 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. Schneekluth 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, at its option and in accordance with the terms set out in Schedule 3. of
this Agreement, 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 from the PC Account in accordance with Schedule 3.
of this Agreement 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 (whether received
pursuant to Section 2.8(b)(2) hereof or from other sources unrelated to the PC)
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 such operating and non-operating expenses incurred
by the MSO, and approved by the PC, in performing its services, 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.
Schneekluth and all the Orthodontists (if any) and other Practice
Providers);
(2) Direct costs associated with operating the Orthodontic Offices,
including without limitation, utilities, cleaning and maintenance,
including maintenance of the interior, exterior and grounds of the
Orthodontic offices as provided in the Master Lease;
(3) 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;
(4) Personal property and intangible taxes assessed against the MSO's
assets used in connection with the operation of the Orthodontic
Offices, including furnishing of a mutually agreed upon orthodontic
software package to the PC, commencing on the date of this Agreement;
(5) 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;
(6) The MSO shall pay for reasonable practice promotion(s), such as
advertising, which the MSO and Dr. Schneekluth mutually agree upon;
(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. Schneekluth
and the Orthodontists (if any) and the other Practice Providers, or the
costs of preparing Federal, state or local tax returns thereof;
(2) Salaries, benefits and other direct costs of employing Dr.
Schneekluth and the Orthodontists (if any) and the other Practice
Providers;
(3) Physician licensure fees, board certification fees and costs of
membership in 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, unless such are programs of or
mandated by OMEGA;
(6) Costs associated with legal, accounting and professional services
incurred by or on behalf of the PC;
(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; and
(10) Any other expenses which are expressly designated herein as
expenses or responsibilities of the PC.
2.10 INTENTIONALLY BLANK
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, 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. Schneekluth and the Orthodontists (if any) on
establishing and maintaining a plan for patients' payments for orthodontic
services on an installment plan basis. All marketing activities hereunder shall
be conducted in compliance with all applicable Laws governing advertising by the
orthodontic profession.
2.13 Complaints. The MSO shall assist the 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, including business interruption insurance, but not
including professional liability insurance (which shall be and remain the
responsibility of the PC).
2.19 Practice Transition and Associate Selection. Dr. Schneekluth and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis; provided, however, that Dr. Schneekluth shall, at a minimum,
continue as a full time employee of the PC, actively engaged in the practice of
orthodontics, for a period of ten (7) years following the date of this
Agreement. Dr. Schneekluth may, after a period of five (5) years following the
date of this Agreement, notify the MSO of his intent to retire. Upon receiving
such notice, the MSO shall have a period of two (2) years to conduct a search
for an appropriate Orthodontist and other professionals (collectively, "Practice
Associates") who will assume the MSO Agreement. Such search shall include use by
the MSO of a national journal advertising program and networking in the
profession to locate appropriate Practice Associates. If at the end of such two
(2) year period the MSO has been unable to find a replacement who will undertake
the practice and the MSO Agreement, then the MSO and Dr. Schneekluth shall work
together for a period of one (1) year to find an Orthodontist who will purchase
the practice valued as if it were a traditional (i.e. not operated with a MSO)
practice holding both the clinical and non-clinical assets. At the end of such
one (1) year period, the MSO shall sell the practice to the highest offer made
by a bona fide purchaser.
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.
2.20 Management Contract Buy Out Option. The PC shall be granted the option to
buy out this Agreement at the conclusion of the fifth year after the effective
date of this Agreement (August 14, 2003) (hereinafter known as the "Option
Date"). The PC must give notice of its intent to exercise such option no later
than six (6) months prior to the Option Date. In the event notice is not given
at such time, the option shall lapse and become non-exercisable. The
aforementioned option shall become effective at the conclusion of the tenth year
after the effective date of this Agreement (August 14, 2008) (hereinafter the
"Second Option Date"). The PC must give notice of its intent to exercise such
option no later than six (6) months prior to such Second Option Date. The
foregoing process shall be repeated in five-year increments commencing five
years after the Second Option Date.
In the event the PC validly exercises its option to buy out this Agreement, the
buy out price for this Agreement shall be the greater of the following:
1. The undepreciated book value of all of the tangible and intangible assets of
the practices; or
2. Seventy six (76%) percent of the average of the following:
a. The previous twelve (12) months gross collection for the practices b. The
previous twelve (12) months production of the practices. c. Two hundred fifty
(250%) percent of the net profits of the practices.
ARTICLE 3
DUTIES OF THE PC
3.1 General. The PC shall be responsible for the operation 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.
Schneekluth and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Dr. Schneekluth and
such Orthodontists. Additionally, the PC shall be solely 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. Schneekluth and the Orthodontists and the other Practice Providers
acting under the supervision and control of Dr. Schneekluth and the
Orthodontists (if any), and no other Orthodontist shall be permitted to use or
occupy the Orthodontic Offices. The 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. Schneekluth
and each Orthodontist who provides orthodontic services to patients is licensed
by the State. In the event that any disciplinary, medical malpractice or other
actions are initiated against Dr. Schneekluth or any Orthodontist or other
Practice Provider, the 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 PC shall ensure
that Dr. Schneekluth and all the Orthodontists employed by the PC participate in
such continuing education as is necessary for Dr. Schneekluth and such the
Orthodontist 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. Schneekluth and
each Orthodontist participates in an on-going risk management program.
3.7 Employment Agreement. The parties recognize that the services to be provided
by the MSO are feasible only if the PC operates an active orthodontic practice
to which it, Dr. Schneekluth and each Orthodontist associated with the PC devote
their full time and attention (which shall mean an average of not less than
sixteen (16) full days per month), unless other specific provisions are made in
writing and mutually agreed upon by the MSO and PC. The PC will cause Dr.
Schneekluth and each individual full-time 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. Schneekluth 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. Schneekluth's or such
Orthodontist's employment shall terminate for any reason (other than a material
breach of this Agreement by the MSO or OMEGA) during the Term of this Agreement,
for a period of 18 months after the termination of Dr. Schneekluth's or such
Orthodontist's Employment Agreement with the PC, Dr. Schneekluth or such
Orthodontist shall agree not to establish, operate or provide orthodontic or
dental services, without the prior written consent of both the 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 ten (10) mile
radius. Such Employment Agreement (or separate agreement) shall also provide,
among other things, that in the event of a breach of Dr. Schneekluth'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. Schneekluth'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) Thirty (30%) percent of the preceding years
Gross Practice Revenues. Such payment shall be made to the MSO by the PC
immediately following receipt of the payment from Dr. Schneekluth 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.
Schneekluth and each Orthodontist and the rights and remedies of the MSO and
OMEGA thereunder or otherwise in respect of the restrictive covenants set forth
in such agreements shall survive termination of this Agreement.
3.8 Confidentiality. The 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 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 (except Dr. Schneekluth 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. Schneekluth and his partners, employees and professional
advisors. 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 Dr.
Schneekluth and his partners, employees and professional advisors to immediately
return to the MSO all Confidential Information, and the PC will not, and will
cause Dr. Schneekluth and his partners, employees and professional advisors 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 Fundamental Understanding. 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 Solicitation; Control. 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. 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 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 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 Office Lease/Sublease. 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 the leases for
the premises occupied by the PC (collectively, the "Master Leases") 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 Leases
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(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 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 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) INTENTIONALLY OMITTED.
5.2 Leasehold Improvements, etc. In accordance with Article 2.2 hereof, 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) Subject to the terms of the lease, 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) Subject to the terms of the lease, 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. The MSO's compensation shall include a minimum
management fee which shall be paid to the MSO prior to any other disbursal of
funds. 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. 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, without interest, such advances or pay said deferred
Management Fees when it deems appropriate. The advancement of funds to the PC or
Dr. Schneekluth shall be subject to the restrictions set forth in Schedule 3B.
hereof and the PC and Dr. Schneekluth agree that Schedule 3B. fairly and
accurately sets forth the compensation arraignments reached between the parties.
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 the Security Agreement 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 to cause all of its employees to
do the same.
(b) The PC shall provide quality services and shall cause Dr. Schneekluth and
the Orthodontists (if any) to serve the orthodontic needs of the patients of the
PC. 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.
(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 10 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 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 10 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 per Dr. Schneekluth 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. Premiums and deductibles with respect to
such policies shall not be MSO Expenses. The PC also agrees to name the MSO and
OMEGA as co-insureds and provided for waivers of insurers rights of subrogation
in favor of the MSO and OMEGA. The PC agrees to deliver to the MSO and OMEGA a
certificate of insurance indicating such coverage. In the event that naming the
MSO as an additional insured results in extra cost to the PC, then the MSO shall
reimburse the PC for such cost.
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 the
MSO shall provide (b) comprehensive general liability and property insurance
covering the Orthodontic Office premises and operations. Such insurances shall
provide for waivers of insurers rights of subrogation in favor of Dr.
Schneekluth and each of the Orthodontists providing services for the PC.
9.3 Tail Insurance Coverage. The PC will cause Dr. Schneekluth and each
Orthodontist (if any) providing services to enter into an agreement with the PC
that upon termination of Dr. Schneekluth's or such Orthodontist's relationship
with the PC, for any reason, tail insurance coverage will be purchased by Dr.
Schneekluth or such Orthodontist. Such provisions may be contained in an
employment agreement, restrictive covenant agreement or other agreement entered
into by the PC and Dr. Schneekluth 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.
Schneekluth 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 and obtain appropriate waivers of
insurers rights of subrogation. In the event that naming the MSO as an
additional insured results in extra cost to the PC, then the MSO shall reimburse
the PC for such cost.
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 such liability, loss, damage,
claim, causes of action, and expenses (including reasonable attorneys' fees), to
the extent 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.
9.6 Notwithstanding anything to the contrary contained in this Agreement, or any
Schedule or Exhibit hereto, in no event shall the MSO or OMEGA or Dr.
Schneekluth or the PC or their officers, directors or employees be liable for
any form of indirect, special, incidental or consequential damages, whether such
damages arise in contract or tort, irrespective of fault, negligence or strict
liability.
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.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the 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 and recover such direct damages
actually incurred by Dr. Schneekluth as a result of such termination.
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; or
(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 (other than as a result of the death or disability of Dr.
Schneekluth) 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; or
(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 ninety (90) days after written notice thereof has been
given to the PC by the MSO, the MSO may terminate this Agreement; or
(d) In the event Dr. Schneekluth or any Orthodontist breaches or defaults under
his or her Employment Agreement and the PC does not cause Dr. Schneekluth or
such Orthodontist to cure such breach or default within any applicable grace
period therefor but not less than sixty (60) days, the MSO may give written
notice of the immediate termination of this Agreement; or
(e) In the event the PC fails for three consecutive months to make repayments to
the MSO of any amounts due as a result of advances made by the MSO to the PC or
Dr. Schneekluth; or
(f) In the event that for a period of six consecutive months the Gross Revenues
of the Garden Grove practice decrease by more than twenty percent (20%) from the
original Gross Revenues for six months of the practice when first acquired from
Dr. Levin in August, 1998.
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 have the
option to either (1) 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 or (2) Omega may terminate this Agreement by paying to the PC the sum
of $1,000 and Omega may then bring in a replacement to take over the practice or
(3) in the event of (e) and (f) above, OMEGA may, at its option, remove the PC
and Dr. Schneekluth from the Garden Grove practice by paying to the PC the sum
of $500 and replace the PC and Dr. Schneekluth with another orthodontist. If
this Agreement is terminated by the MSO or Omega, Dr. Schneekluth shall be bound
by the terms of the non-compete agreement attached as Exhibit C to the Stock
Put/Call 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 and, if applicable, such other
sums accrued or related to occurrences arising at or prior to the date of
termination and recover such direct damages actually incurred by OMEGA or the
MSO as a result of such 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. Schneekluth 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
DISPUTE RESOLUTION
14.1 Dispute Resolution.
(a) If during the term of this Agreement a dispute arises between the parties,
or one party perceives the other as acting unfairly or unreasonably, or a
question of interpretation arises hereunder, then the parties' shall promptly
confer and exert their best efforts in good faith to reach a reasonable and
equitable resolution of the issue.
If resolution cannot be reached by the parties within thirty (30) days as set
forth above, then any controversy or claim arising out of this Agreement of an
aggregate amount less than $250,000 not resolved pursuant to the above shall be
settled by arbitration under the rules or the American Arbitration Association's
Rules. Judgment upon any award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. Any arbitration decision awarding an
amount less than $250,000 shall be final and binding upon the parties. Amount
awarded in excess of $250,000 shall be appealable to a court in accordance with
Article 15.9 hereof. Any arbitration proceeding shall be filed in the office of
the American Arbitration Association located in Los Angeles, California and
conducted in Los Angeles, California. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. The arbitrator,
shall be bound by the terms and conditions of this Agreement and shall not have
the authority to award multiple, punitive or consequential damages under any
circumstances.
For claims exceeding $250,000, either Party may, at its option, elect to have
any dispute adjudicated by either arbitration in accordance with Article 15.9
hereof.
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. Schneekluth, to:
Clark E. Schneekluth, D.D.S.
511 Warner Avenue, Suite 104
Huntington Beach, California 92649
If to the OMEGA, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
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
management 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. Neither party shall be deemed
to be in breach of this agreement by reason of a violation of such Laws as
described above unless such party had actual knowledge of such violation as of
the effective date of this Agreement.
15.4 Exclusive Remedies. The remedies specified in this Agreement are the
exclusive remedies for liabilities of the parties arising under this Agreement.
The limitations on liability, releases from liability, and waiver and indemnity
provisions expressed in this Agreement shall apply to the full extent permitted
by law, even in the event of a parties' fault, negligence (in whole or in part),
strict liability, or other basis of liability, and whether liability is founded
in contract, tort, or otherwise, and shall extend to the parties and its
affiliated companies and its and their shareholders, directors, officers,
employees, agents, subcontractors, and suppliers.
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, 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 PC or Dr. Schneekluth to any person, firm
or corporation controlled by the MSO, controlling the MSO or under common
control with the MSO or to any financing institutions as may be required by such
financing institutions or required by the terms of credit agreements which may
be entered into from time to time by Omega for the obtaining of additional
financing for Omega.
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 but reasonable
attorneys' fees, in addition to any other relief to which it may be entitled,
all as determined and warded 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 of California, irrespective of its
conflict of laws rules. The parties agree to submit to the jurisdiction of any
state or federal court located in Los Angeles, California. 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
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.
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:
Clark E. Schneekluth, D.D.S., M.S., Inc.
By:_______________________________
Name: Clark E.. Schneekluth, D.D.S.
Title: President
MSO:
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
By:_______________________________
Name: Robert J. Schulhof
Title: President
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name: Robert J. Schulhof
Title: President
<PAGE>
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Clark E. Schneekluth, D.D.S.
511 Warner Avenue, Suite 104
Huntington Beach, California 92649
<PAGE>
SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
The office space and related leasehold improvements which the MSO will provide
to the PC pursuant to Section 2.2 of the Management Services Agreement to which
this Schedule 2 is attached are located at 511 Warner Avenue, Suite 104,
Huntington Beach, California 92649 ("Huntington Beach") and 5251 and 5253
Lampson Ave., Garden Grove, California ("Garden Grove"). 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 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 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.
<PAGE>
SCHEDULE 3
COMPENSATION & MANAGEMENT FEES
A. 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 Seven and One
Half Percent (67.5%) of the Practice Revenues, plus (b) during the first twenty
four (24) months of this Agreement only, a additional amount representing a
start up fee of five (5%) percent of the Practice Revenues ("Start Up Fee"),
commencing on the effective date of this Agreement. The PC shall be entitled to
Twenty Seven and One Half Percent (32.5%) of such monthly Practice Revenues,
less the start up fee during the first twenty four (24) months of this
Agreement.
Notwithstanding anything in this Agreement or any other document to the
contrary, in no event shall the MSO during the first two years of this Agreement
receive less than One Hundred Six Thousand Seven Hundred Sixteen Dollars
($106,716) per year [Eight Thousand Eight Hundred Ninety Three Dollars ($8893)
per month] in Management Fees ("Minimum Management Fee") (including the Start Up
Fee during the first twenty four (24) months of this Agreement) annually and
such Minimum Management Fee shall be disbursed prior to disbursement of any
other funds. At the end of the initial two years of this Agreement such Minimum
Management Fee shall decrease to Eighty Thousand Thirty Three Dollars ($80,030)
per year [Six Thousand Six Hundred Sixty Nine Dollars ($6669) per month] for the
remaining term of this Agreement.
Each financial quarter during the Term, the MSO shall provide the PC with an
unaudited internal accounting of the MSO Expenses actually incurred for such
quarter, 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 financial
quarter, Sixty (60%) percent of such difference shall be returned by the MSO to
the PC as a profit incentive rebate (the "Rebate"). Commencing only after the
first quarter in which the PC is entitled to a Rebate, if such MSO Expenses are
more than sixty (60%) percent of the Practice Revenues for such financial
quarter, fifty (50%) percent of such excess will be charged to the PC and set
off against payments due to the 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 in equal amounts 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), including, but not limited to, all fees and charges
collected as a result of professional orthodontic services furnished to patients
by the PC and for any other goods or services sold or provided to such patients.
B. Dr. Schneekluth and the PC acknowledge, pursuant to a separate agreement of
even date herewith and in this Agreement that they have, as of the date of the
execution of this been loaned by OMEGA cash advances against the PC's earning
for the Huntington Beach practice totaling $84,078. As of the date of execution
of this Agreement, a net amount of $48,490 is owed to OMEGA as a result of
offsets made against the $84,078 during year preceding the effective date of
this Agreement. The parties agree that if after payment of all MSO expenses and
payment of the Minimum Management Fees stated above, the gross, combined, income
to the PC from both the Huntington Beach practice and the Garden Grove practice
equal less than $10,000 per month, than the MSO and OMEGA shall advance to the
PC, on the terms stated in A. above, such sum as to bring the PC's gross income
up to $10,000.
Notwithstanding anything in this Agreement to the contrary, in no event shall
OMEGA or the MSO be obligated to loan to the PC or Dr. Schneekluth more than
$26,510 or any amounts which would make the total outstanding indebtedness of
Dr. Schneekluth or the PC to the MSO or OMEGA greater than $75,000 including the
$48,490 already owing to OMEGA and the MSO.
<PAGE>
EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASES
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
Clark E. Schneekluth, D.D.S.
511 Warner Avenue, Suite 104
Huntington Beach, California 92649
<PAGE>
EXHIBIT C
PC'S AFFIDAVIT
<PAGE>
AFFIDAVIT
I, Clark E. Schneekluth, D.D.S., declare:
I am an Orthodontist, duly licensed in the State of California and I
practice through a professional corporation under the name Clark E. Schneekluth,
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 August ___, 1998, between the 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 511 Warner Avenue, Suite 104, Huntington Beach, California
92649 ("Huntington Beach") and 5251 and 5253 Lampson Ave., Garden Grove,
California ("Garden Grove") and an operating budget and estimated income of the
orthodontic offices, 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 Seven
and One Half Percent (67.5%) of "Practice Revenues" to be charged by the MSO as
contemplated by the Agreement, but not less than One Hundred Six Thousand Seven
Hundred Sixteen Dollars $106,716 a year (plus the monthly start up management
fee of 5% payable during each of the twenty four months of the Agreement), will
afford it a reasonable but not excessive return for its services rendered and
obligations incurred. In addition, the Twenty Seven and One Half Percent (27.5%)
of "Practice Revenues" (the 5% start up management fees only due during the
first twenty four (24) months of this Agreement) 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 ________ 1998.
---------------------------
Clark E. Schneekluth, D.D.S.
STATE OF CALIFORNIA
___________________, ss. August ___, 1998
Then personally appeared the above-named Clark E. Schneekluth, D.D.S. and
acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 1st day of August __ 1998, by
Clark E. Schneekluth, D.D.S., M.S., Inc., an California corporation (the "PC"),
and Clark E. Schneekluth, D.D.S. ("Dr. Schneekluth") 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 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. Schneekluth 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 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 PC from time to
time in writing.
Notices to the PC shall be given at:
Clark E. Schneekluth, D.D.S.
511 Warner Avenue, Suite 104
Huntington Beach, California 92649
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.
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.
PC: MSO:
Clark E. Schneekluth, D.D.S., M.S., INC. OMEGA ORTHODONTICS OF
WOODLAND HILLS, INC.
By:____________________________ By:_______________________
Name: Clark E. Schneekluth, D.D.S. Name: Robert J. Schulhof
Title: President Title: President
DR. SCHNEEKLUTH
____________________________
Clark E. Schneekluth, D.D.S.
MANAGEMENT SERVICES AGREEMENT
BETWEEN
J.F. Whitaker, D.D.S., Inc.
(the "New PC")
AND
Omega Orthodontics of Woodland Hills, Inc.
(the "MSO")
AND
Omega Orthodontics, Inc.
("OMEGA")
<PAGE>
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM................................................................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...............4
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................................................................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 DUTIES OF THE NEW PC................................................9
3.1 General....................................................................9
3.2 Employment of the Orthodontists and Rendering of Patient Care..............9
3.3 Professional Services......................................................9
3.4 Records...................................................................10
3.5 Professional Expenses.....................................................10
3.6 Professional Liability Insurance..........................................10
3.7 Employment Agreement......................................................11
3.8 Confidentiality...........................................................11
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION, APPROVAL OF
ADVERTISING MATERIAL AND NO RECIPROCATION.........................12
4.1 Fundamental Understanding.................................................12
4.2 No Solicitation; Control..................................................13
4.3 No Advertising............................................................13
4.4 No Referrals..............................................................13
ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT...........................13
5.1 Office Lease/Sublease.....................................................13
5.2 Leasehold Improvements, etc...............................................14
5.3 No Warranty...............................................................15
ARTICLE 6 COMPENSATION.......................................................15
ARTICLE 7 SECURITY INTEREST..................................................17
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..................................19
9.2 Insurance to be Maintained by the MSO.....................................19
9.3 Tail Insurance Coverage...................................................19
9.4 Additional Insureds.......................................................19
9.5 Indemnification...........................................................20
ARTICLE 10 TERMINATION.......................................................20
10.1 Termination by the New PC................................................20
10.2 Termination by MSO.......................................................21
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................22
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................23
ARTICLE 13 MISCELLANEOUS.....................................................23
13.1 Access to Records........................................................23
13.2 Patient Records..........................................................23
13.3 The New PC's Control Over the Orthodontic Practice.......................23
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.....................................24
14.1 Alternative Dispute Resolution...........................................24
14.2 Waiver of Jury...........................................................25
ARTICLE 15 GENERAL PROVISIONS................................................25
15.2 INTENTIONALLY OMITTED....................................................25
15.3 Contract Modifications for Prospective Legal Events......................25
15.4 Remedies.................................................................25
15.5 No Obligation to Third Parties...........................................26
15.6 Entire Agreement.........................................................26
15.7 Assignment...............................................................26
15.8 INTENTIONALLY OMITTED....................................................26
15.9 Governing Law............................................................26
15.10 Events Excusing Performance.............................................27
15.11 Compliance with Applicable Laws.........................................27
15.12 Language Construction...................................................27
15.13 Amendments..............................................................27
15.14 Severability............................................................27
15.15 No Waiver...............................................................27
15.16 Captions................................................................27
15.17 Counterparts............................................................27
SCHEDULE 1 THE ORTHODONTISTS
SCHEDULE 2 ORTHODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C NEW PC'S AFFIDAVIT
EXHIBIT D SECURITY AGREEMENT
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this 5th day of August, 1998, by and
between J.F. Whitaker, D.D.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 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 John F. Whitaker, D.D.S. ("Dr. Whitaker") who is duly
licensed to practice orthodontics in the State have entered into that certain
Affiliation Agreement and Stock Purchase Agreement (the "Affiliation Agreement")
dated as of August 5, 1998, pursuant to which OMEGA acquired certain stock and
assets of Dr. Whitaker;
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.
Whitaker 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 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. Whitaker 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 and subject to consultation with the
New PC. 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 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.
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 at all
times 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. Whitaker 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,
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, 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 non-orthodontic 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 other matters not
directly related to services provided by the MSO hereunder or its compliance
with Laws, or for any legal or tax advice or services or personal financial
services to Dr. Whitaker 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, however, only the MSO shall be entitled to
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 or Dr. Whitaker 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. Whitaker 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 (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 such operating and non-operating expenses incurred
by the MSO in performing its services, 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.
Whitaker and all the Orthodontists (if any) and other Practice
Providers);
(2) Direct costs associated with operating the Orthodontic Offices,
including without limitation, utilities, cleaning and maintenance,
including maintenance of the interior, exterior and grounds of the
Orthodontic offices as provided in the Master Lease;
(3) 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;
(4) Personal property and intangible taxes assessed against the MSO's
assets used in connection with the operation of the Orthodontic
Offices, including furnishing of a mutually agreed upon orthodontic
software package to the New PC, commencing on the date of this
Agreement;
(5) 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;
(6) The MSO shall pay for reasonable practice promotion(s), such as
advertising, which the MSO and Dr. Whitaker mutually agree upon;
(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.
Whitaker 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. Whitaker
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) One-half of 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, exceeding the lesser of the
fifty (50%) percent of the cost of such continuing professional
education (fifty units over two years) or $1,500;
(6) Costs associated with legal, accounting and professional services
incurred by or on behalf of the New PC;
(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 INTENTIONALLY BLANK
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. Whitaker 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, but not
including professional liability insurance (which shall be and remain the
responsibility of the New PC).
2.19 Practice Transition and Associate Selection. Dr. Whitaker and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis; provided, however, that Dr. Whitaker shall, at a minimum,
continue as a full time employee of the New PC, actively engaged in the practice
of orthodontics, for a period of three (3) years following the date of this
Agreement. Dr. Whitaker may, after a period of three (3) years following the
date of this Agreement, notify the MSO of his intent to retire. Upon receiving
such notice, the MSO shall have a period of two (2) years to conduct a search
for an appropriate Orthodontist and other professionals (collectively, "Practice
Associates") who will assume the MSO Agreement. Such search shall include use by
the MSO of a national journal advertising program and networking in the
profession to locate appropriate Practice Associates. If at the end of such two
(2) year period the MSO has been unable to find a replacement who will undertake
the practice and the MSO Agreement, then the MSO and Dr. Whitaker shall work
together for a period of one (1) year to find an Orthodontist who will purchase
the practice valued as if it were a traditional (i.e. not operated with a MSO)
practice holding both the clinical and non-clinical assets. At the end of such
one (1) year period, the MSO shall sell the practice to the highest offer made
by a bona fide purchaser.
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 operation 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.
Whitaker and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Dr. Whitaker and such
Orthodontists. Additionally, the New PC shall be solely 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. Whitaker and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr. Whitaker 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.
Whitaker 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. Whitaker 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. Whitaker and all the Orthodontists employed by the New PC
participate in such continuing education as is necessary for Dr. Whitaker and
such the Orthodontist 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.
Whitaker 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. Whitaker and each Orthodontist associated with the New
PC devote their full time and attention (which shall mean an average of not less
than fourteen (14) full days per month), unless other specific provisions are
made in writing and mutually agreed upon by the MSO and New PC. The New PC will
cause Dr. Whitaker and each individual full-time 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. Whitaker 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. Whitaker's or
such Orthodontist's employment shall terminate for any reason (other than a
material 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. Whitaker's or
such Orthodontist's Employment Agreement with the New PC, Dr. Whitaker 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. Whitaker'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. Whitaker'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) Thirty five (35%) percent of the preceeding
years Gross Practice Revenues. Such payment shall be made to the MSO by the New
PC immediately following receipt of the payment from Dr. Whitaker 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. Whitaker 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
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.
Whitaker 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. Whitaker 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. Whitaker 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. Whitaker 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 Fundamental Understanding. 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 Solicitation; Control. 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. 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 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
5.1 Office Lease/Sublease. 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 (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(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 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 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) INTENTIONALLY OMITTED.
5.2 Leasehold Improvements, etc. In accordance with Article 2.2 hereof, 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) Subject to the terms of the lease, 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) Subject to the terms of the lease, 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. 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. 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, without interest, 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 the
Security Agreement 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. Whitaker 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. Whitaker 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 and provided for waivers of insurers rights of subrogation in favor
of the MSO and OMEGA. The New PC agrees to deliver to the MSO and OMEGA a
certificate of insurance indicating such coverage. In the event that naming the
MSO as an additional insured results in extra cost to the New PC, then the MSO
shall reimburse the New PC for such cost.
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 the
MSO shall provide (b) comprehensive general liability and property insurance
covering the Orthodontic Office premises and operations. Such insurances shall
provide for waivers of insurers rights of subrogation in favor of Dr. Whitaker
and each of the Orthodontists providing services for the New PC.
9.3 Tail Insurance Coverage. The New PC will cause Dr. Whitaker and each
Orthodontist (if any) providing services to enter into an agreement with the New
PC that upon termination of Dr. Whitaker's or such Orthodontist's relationship
with the New PC, for any reason, tail insurance coverage will be purchased by
Dr. Whitaker 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. Whitaker 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.
Whitaker 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 and obtain appropriate waivers of
insurers rights of subrogation. In the event that naming the MSO as an
additional insured results in extra cost to the New PC, then the MSO shall
reimburse the New PC for such cost.
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 such liability, loss,
damage, claim, causes of action, and expenses (including reasonable attorneys'
fees), to the extent 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.
9.6 Notwithstanding anything to the contrary contained in this Agreement, or any
Schedule or Exhibit hereto, in no event shall Dr. Whitaker, the New PC, the MSO
or OMEGA or their officers, directors or employees be liable for any form of
indirect, special, incidental or consequential damages, whether such damages
arise in contract or tort, irrespective of fault, negligence or strict
liability.
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 the Stock
Put/Call Option and Successor Designation Agreement and recover such direct
damages actually incurred by Dr. Whitaker as a result of such termination.
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 (other than as a result of the death or disability of Dr.
Whitaker) 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.
(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. Whitaker or any Orthodontist breaches or defaults under his
or her Employment Agreement and the New PC does not cause Dr. Whitaker or such
Orthodontist to cure such breach or default within any applicable grace period
therefor but not less than sixty (60) days, 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 have the
option to either (1) 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 or (2) Omega may terminate this Agreement by paying to the New PC the
sum of $1,000 and Omega may then bring in a replacement to take over the
practice. If this Agreement is terminated by the MSO or Omega, Dr. Whitaker
shall be bound by the terms of the non-compete agreement attached as Exhibit C
to the Stock Put/Call 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 and recover such
direct damages actually incurred by OMEGA or the MSO as a result of such
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. Whitaker 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
DISPUTE RESOLUTION
14.1 Dispute Resolution.
(a) If during the term of this Agreement a dispute arises between the parties,
or one party perceives the other as acting unfairly or unreasonably, or a
question of interpretation arises hereunder, then the parties' shall promptly
confer and exert their best efforts in good faith to reach a reasonable and
equitable resolution of the issue.
If resolution cannot be reached by the parties within thirty (30) days as set
forth above, then any controversy or claim arising out of this Agreement of an
aggregate amount less than $250,000 not resolved pursuant to the above shall be
settled by arbitration under the rules or the American Arbitration Association's
Rules. Judgment upon any award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. Any arbitration decision awarding an
amount less than $250,000 shall be final and binding upon the parties. Amount
awarded in excess of $250,000 shall be appealable to a court in accordance with
Article 15.9 hereof. Any arbitration proceeding shall be filed in the office of
the American Arbitration Association located in Los Angeles, California and
conducted in Los Angeles, California. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. The arbitrator,
shall be bound by the terms and conditions of this Agreement and shall not have
the authority to award multiple, punitive or consequential damages under any
circumstances.
For claims exceeding $250,000, either Party may, at its option, elect to have
any dispute adjudicated by either arbitration in accordance with Article 15.9
hereof.
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. Whitaker, to:
John F. Whitaker, D.D.S.
13252 Hawthorne Blvd. Suite 200
Hawthorne, CA 90250
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
management 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. Neither party shall be
deemed to be in breach of this agreement by reason of a violation of such Laws
as described above unless such party had actual knowledge of such violation as
of the effective date of this Agreement.
15.4 Exclusive Remedies. The remedies specified in this Agreement are the
exclusive remedies for liabilities of the parties arising under this Agreement.
The limitations on liability, releases from liability, and waiver and indemnity
provisions expressed in this Agreement shall apply to the full extent permitted
by law, even in the event of a parties' fault, negligence (in whole or in part),
strict liability, or other basis of liability, and whether liability is founded
in contract, tort, or otherwise, and shall extend to the parties and its
affiliated companies and its and their shareholders, directors, officers,
employees, agents, subcontractors, and suppliers.
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 or Dr. Whitaker to any person, firm
or corporation controlled by the MSO, controlling the MSO or under common
control with the MSO or to any financing institutions as may be required by such
financing institutions or the terms of credit agreements which may be entered
into from time to time by Omega for the obtaining of additional financing for
Omega.
15.8 INTENTIONALLY OMITTED.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, irrespective of its
conflict of laws rules. The parties agree to submit to the jurisdiction of any
state or federal court located in Los Angeles, California. 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
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.
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:
J. F. Whitaker, D.D.S., Inc.
By:_______________________________
Name: John F. Whitaker, D.D.S.
Title: President
MSO:
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
By:_______________________________
Name: Robert J. Schulhof
Title: President
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name: Robert J. Schulhof
Title: President
<PAGE>
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
John F. Whitaker, D.D.S.
13252 Hawthorne Blvd. Suite 200
Hawthorne, CA 90250
<PAGE>
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 13252 Hawthorne Blvd., Suite
200, Hawthorne, California 90250. 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.
<PAGE>
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, (a) during the Term of this
Agreement, monthly Management Fees in an amount equal to Seventy Five Percent
(75%) 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
$2,500 commencing on the effective date of this Agreement. The New PC shall be
entitled to Twenty Five Percent (25%) 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
fifteen (15%) percent of the Practice Revenues in Management Fees (not including
the start up management fees during the first thirty six (36) months of this
Agreement) annually and such minimum Management Fee shall be disbursed prior to
disbursement of any other funds. At the end of each financial quarter during the
Term, the MSO shall provide the New PC with an unaudited internal accounting of
the MSO Expenses actually incurred for such quarter, 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 financial quarter, 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 financial quarter, 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 orthodontic services furnished to patients
by the New PC and for any other goods or services sold or provided to such
patients.
<PAGE>
EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
John F. Whitaker, D.D.S.
13252 Hawthorne Blvd. Suite 200
Hawthorne, CA 90250
<PAGE>
EXHIBIT C
New PC'S AFFIDAVIT
<PAGE>
AFFIDAVIT
I, John F. Whitaker, 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 J. F. Whitaker,
D.D.S., Inc. (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 ________ ___, 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 13252 Hawthorne Blvd. Suite 200 Hawthorne, CA
90250 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 (plus the monthly start up management fee of
$2,500 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 Twenty Five Percent
(25%) 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 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 August, 1998.
---------------------------
John F. Whitaker, D.D.S.
STATE OF CALIFORNIA
___________________, ss. August ___, 1998
Then personally appeared the above-named John F. Whitaker, D.D.S. and
acknowledged the foregoing Affidavit to be his free act and deed.
[SEAL] ____________________________
Notary Public
My Commission Expires:
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the 1st day of January 1998, by J. F.
Whitaker, D.D.S., Inc., an California corporation (the "New PC"), and John F.
Whitaker, D.D.S. ("Dr. Whitaker") 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. Whitaker 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:
John F. Whitaker, D.D.S.
13252 Hawthorne Blvd. Suite 200
Hawthorne, CA 90250
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:
J. F. Whitaker, D.D.S., Inc. OMEGA ORTHODONTICS OF
WOODLAND HILLS, INC.
By:____________________________ By:__________________________
Name: John F. Whitaker, D.D.S. Name: Robert J. Schulhof
Title: President Title: President
DR. WHITAKER
____________________________
John F. Whitaker, D.D.S.
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 5th day of August, 1998 by and among
J. F. Whitaker, D.D.S., Inc. a professional corporation (the "New PC")
incorporated under the laws of the State of California (the "State"); John F.
Whitaker, D.D.S. ("Dr. Whitaker") who is duly licensed to practice orthodontics
in the State; Omega Orthodontics, Inc., a Delaware corporation ("OMEGA"); and
Omega Orthodontics of Woodland Hills, Inc., a Delaware corporation (the "MSO"),
which is a wholly-owned subsidiary of OMEGA, with reference to the following
facts.
RECITALS
A. OMEGA is an orthodontic 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. Whitaker pursuant to that
certain Affiliation Agreement and Asset Purchase Agreement (the "Affiliation
Agreement") dated as of August 5, 1998 by and between OMEGA and Dr. Whitaker.
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.
Whitaker 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. Whitaker 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. Whitaker'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. Whitaker has agreed to grant to the MSO, and the MSO desires to acquire from
Dr. Whitaker 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.
Whitaker, 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 fair market value, but not less
than 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 fair
market value, but not less than 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. Whitaker 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. Whitaker 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"). It is understood and agreed that Dr.
Whitaker will continue to be bound by the terms of the non-competition agreement
attached hereto as Exhibit C.
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.
Whitaker 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, such; 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 amortized book 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 amortized book value of such assets to each of the MSO and the New PC, and
the amortized book 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 and the MSO is not paying the MSO Expenses (as
defined in the Management Services Agreement) as they become due such that the
ability of the New PC to continue to practice orthodontics is compromised, the
Call Option may be exercised by the payment by the New PC to the MSO of the sum
of (i) the book value of the assets described in Clause (a) of this Section 3
plus (ii) the book value of the assets described in Clause (b) of this Section
3, less an amount equal to two-thirds (2/3) of the difference between (y) all
management fees paid by the New PC to the MSO pursuant to Schedule 3 of the
Management Services Agreement less (z) the sum of all the MSO Expenses paid by
the MSO under the Management Services Agreement plus the Rebates paid to the New
PC pursuant to Schedule 3 of the Management Services Agreement; provided,
however, that the amount due under clause (ii) of this sentence shall not be
less than zero.
4. Closing and Delivery. At 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, the New PC shall pay cash,
or, at the option of the New PC and with the consent of Dr. Whitaker, a
combination of cash, forgiveness of amounts due to Dr. Whitaker under the
Purchase Note and/or return of the shares of Omega Common Stock received by Dr.
Whitaker 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. Whitaker 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 or any portion of
the Capital Stock then held by Dr. Whitaker:
(i) the death of Dr. Whitaker;
(ii) if Dr. Whitaker 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. Whitaker 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. Whitaker 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. Whitaker becomes hospitalized for alcohol or drug
abuse;
(vi) if Dr. Whitaker is convicted of a felony;
(vii) if Dr. Whitaker 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. Whitaker'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. Whitaker 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. Whitaker 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. Whitaker and such involuntary petition, assignment
or attachment is not discharged within sixty (60) days after creation;
(xi) if Dr. Whitaker 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. Whitaker retires within the meaning of Paragraph
(c) of this Section 5; or
(xiii) if Dr. Whitaker desires to sell more than twenty five
(25%) percent 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 (90) days, (i) prevents Dr. Whitaker from performing
his duties competently and adequately as determined by the MSO, or (ii)
substantially impairs the New PC's or Dr. Whitaker's ability to practice
orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Whitaker shall occur on
the date when Dr. Whitaker 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, 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. Whitaker (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. Whitaker 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. Whitaker, Dr.
Whitaker 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. Whitaker 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. If the sale of such
Capital Stock represents twenty five (25%) percent or less of the Capital Stock,
then, unless the MSO or OMEGA reasonably believes such Purchaser to be
unacceptable, such transfer shall not constitute a Transfer Event. If such sale
is greater the twenty five (25%) percent of the Capital Stock then 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. Whitaker 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. Whitaker 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. Whitaker 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. Whitaker (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 negotiable promissory note, secured by the Capital Stock
of Dr. Whitaker. 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. Whitaker's Estate.
(i) Upon the death of Dr. Whitaker and receipt of
notice of a Successor Designation Exercise Notice, Dr.
Whitaker's personal representative shall apply for and obtain
any necessary court approval or confirmation of the sale of
Dr. Whitaker's shares of Capital Stock pursuant to this
Agreement. The representative of the estate of Dr. Whitaker
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. Whitaker's spouse, if any,
shall not be considered the death of Dr. Whitaker for purposes
of this Agreement.
(iii) The estate of Dr. Whitaker 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. Whitaker to transfer to the Designated Successor
full legal and equitable tax-free title to the Capital Stock
of Dr. Whitaker.
(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. Whitaker hereby consents to the
acquisition and maintenance in force of a disability insurance policy and a life
insurance policy by the MSO and OMEGA on Dr. Whitaker ("Insurance Policies").
The life insurance policy may be in an aggregate face amount of up to three
times Dr. Whitaker's income, as shown on the W-2 Form prepared by the New PC for
the most recent calendar year. Dr. Whitaker agrees, at the election of the MSO
and OMEGA, to take whatever actions are necessary to assist in the acquisition
of any such Insurance Policy by the MSO and OMEGA.
(b) The Insurance Policies shall name the MSO and OMEGA 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 and OMEGA shall pay all premiums falling due
on all such policies. Such payments shall be made by the MSO or OMEGA and shall
not be considered MSO expenses pursuant 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. Whitaker 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. Whitaker 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. Whitaker 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.
Whitaker shall execute and deliver to Richard M/ Rosenthal, Esq., Encino Office
Park, Building II, 6345 Balboa Blvd., Suite 330, Encino, CA 91316-1524, 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. Whitaker, with copies
provid3ed to the MSO. Upon execution of this Agreement, Dr. Whitaker 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.
Whitaker. 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 August, ___, 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.
Whitaker 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.
Whitaker.
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. Whitaker, 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. Whitaker 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. Whitaker 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.
Whitaker 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 or to such financing institutions as may be required by the terms of
credit agreements which may be entered into from time to time by Omega for the
obtaining of addition financing for 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. Whitaker, to:
J. F. Whitaker, D.D.S., Inc.
13252 Hawthorne Blvd., Suite 200
Hawthorne, California 90250
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 of California.
(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. Whitaker 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) Remedies. The remedies specified in this Agreement are the
exclusive remedies for liabilities of the parties arising under this Agreement.
The limitations on liability, releases from liability, and waiver and indemnity
provisions expressed in this Agreement shall apply to the full extent permitted
by law, even in the event of a parties' fault, negligence (in whole or in part),
strict liability, or other basis of liability, and whether liability is founded
in contract, tort, or otherwise, and shall extend to the parties and its
affiliated companies and its and their shareholders, directors, officers and
employees.
18. Dispute Resolution.
Any dispute which arises as a result of this Agreement shall be settled
in accordance with the terms set forth in Article 14 of the Management Services
Agreement executed August ___, 1998.
IN WITNESS WHEREOF, the New PC, Dr. Whitaker, 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"
J. F. Whitaker, D.D.S., Inc.
an California corporation
By: ______________________________
John F. Whitaker, D.D.S., President
DR. WHITAKER
______________________________
John F. Whitaker, D.D.S.,
"MSO"
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
a Delaware corporation
By: ______________________________
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:_______________________________
Robert J. Schulhof, President and
Chief Executive Officer
<PAGE>
SPOUSAL JOINDER AND CONSENT
I am the spouse of John F. Whitaker, D.D.S., the sole Stockholder of J.
F. Whitaker, 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 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 August, 1998.
Signature:
Printed or Typed Name: Sydney Whitaker
<PAGE>
EXHIBIT A
ORTHODONTIC OFFICES
The offices and related leasehold improvements constituting the Orthodontic
Offices are located at 13252 Hawthorne Blvd., Suite 200, Hawthorne, California
90250.
<PAGE>
EXHIBIT B
STOCK
The authorized capital stock of the New PC is 100,000 shares of common
stock, $0.00 par value per share. 5,000 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 John F. Whitaker, D.D.S.
<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is made as of this _____ day of
August, 1998 by and between John F. Whitaker, D.D.S., ("Dr. Whitaker"), who is
duly licensed to practice orthodontics in the state of California, and J. F.
Whitaker, D.D.S. Inc., a professional corporation (the "New PC") incorporated
under the laws of the State and Omega Orthodontics of Woodland Hills, Inc., a
Delaware Corporation.
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 August ___, 1998 by
and among Dr. Whitaker, the New PC, Omega Orthodontics, Inc., a Delaware
corporation ("Omega") and Omega Orthodontics of Woodland Hills Inc., a Delaware
corporation (the "MSO") which is a wholly owned subsidiary of Omega.
RECITALS
A. Dr. Whitaker 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. Whitaker of his Capital Stock
to the Purchaser pursuant to Section 8 of the Stock Agreement, Dr. Whitaker 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. Whitaker's Covenants. During the term of this Agreement in the
Service Area described in Section 4 below, Dr. Whitaker shall not (directly or
indirectly through any business, enterprise, venture, partnership, corporation
or any other entity controlled directly or indirectly by Dr. Whitaker, 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. Whitaker '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. Whitaker
or any person employed or under contract to Dr. Whitaker (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. Whitaker, 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. Whitaker's Representations. Dr. Whitaker 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. Whitaker
acknowledges that this Agreement is subject to all representations, warranties
and covenants of Dr. Whitaker in the Stock Agreement.
3. Service Area. The Service Area to which Dr. Whitaker '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. Whitaker, 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. Whitaker 's agreement not to
compete and other covenants herein, the New PC shall pay Dr. Whitaker 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. Whitaker of this
Agreement, the New PC shall be entitled to receive, on behalf of the MSO, from
Dr. Whitaker, 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. Whitaker
'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.
Whitaker 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. Whitaker agrees that in
such case, the New PC shall be entitled to injunctive relief and Dr. Whitaker
agrees not to assert in any proceeding that the New PC has an adequate remedy at
law. Dr. Whitaker 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. Whitaker. 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. Whitaker: Dr. John F. Whitaker, D.D.S.
13252 Hawthorne Blvd., Suite 200
Hawthorne, California 90250
If to the New PC: Dr. J. F. Whitaker, D.D.S., Inc.
13252 Hawthorne Blvd., Suite 200
Hawthorne, California 90250
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(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. Whitaker
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.
"NEW PC"
J. F. Whitaker, D.D.S., Inc.
an California corporation
By: ______________________________
John F. Whitaker, D.D.S., President
DR. WHITAKER
______________________________
John F. Whitaker, D.D.S.,
ACKNOWLEDGED BY:
"MSO"
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
a Delaware corporation
By: ______________________________
Robert J. Schulhof, President
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 August, 1998 by and among
Clark E. Schneekluth, D.D.S. M.S., Inc., a professional corporation (the "PC")
incorporated under the laws of the State of California (the "State"); Clark E.
Schneekluth, D.D.S. ("Dr. Schneekluth") who is duly licensed to practice
orthodontics in the State; Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"); and Omega Orthodontics of Woodland Hills, Inc., a Delaware
corporation (the "MSO"), which is a wholly-owned subsidiary of OMEGA, with
reference to the following facts.
RECITALS
A. OMEGA is an orthodontic 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. Schneekluth pursuant to that
certain Affiliation Agreement and Asset Purchase Agreement (the "Affiliation
Agreement") dated as of August 14, 1998 by and between OMEGA and Dr.
Schneekluth, and the parties have determined that it would be to their mutual
advantage to increase Dr. Schneekluth's orthodontic practice by each acquiring
certain assets of Dr. Richard A. Levin's orthodontic practice located at 5251
and 5253 Lampson Ave., Garden Grove, California ("New Orthodontic Offices") and
merging the Original Orthodontic Offices and the New Orthodontic Offices into
one signal orthodontic practices with two separate and distinct locations
(hereinafter know as the "Orthodontic Practices"); and
C. The PC now owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Dr.
Schneekluth 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. Schneekluth 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. Schneekluth'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. As a condition of entering into the new Management Services
Agreement, Dr. Schneekluth has agreed to grant to the MSO, and the MSO desires
to acquire from Dr. Schneekluth certain rights, including but not limited to,
the right to designate the successor purchaser (the "Designated Successor") of
all or any part of the issued and outstanding Capital Stock upon the occurrence
of certain events. In addition, under the Management Services Agreement, upon
termination thereof, each of the PC and the MSO were granted certain rights to
be set forth in this Agreement.
G. The Parties desire that this Agreement replace and supercede the
Stock Put/Call Option and Successor Designation Agreement dated _____, 1997 by
and between the parties.
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.
Schneekluth, the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to
require the 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 fair market value, but not less
than 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 fair
market value, but not less than book value, the right to receive
payments for breach of the restrictive covenants provided for in
Section 3.7 of the Management Services Agreement and in the applicable
Employment Agreement with Dr. Schneekluth contemplated thereunder, and
any goodwill and other intangible assets set forth on the Balance
Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assume all debt and all contracts, payables and leases
which are obligations of the MSO and which relate solely to the
performance of its obligations under the Management Services Agreement
or the properties subleased in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the PC and Dr. Schneekluth at least twenty (20) calendar
days prior to the date specified in such notice as the date for the closing of
the Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price"). It is understood and agreed that Dr.
Schneekluth will continue to be bound by the terms of the non-competition
agreement attached hereto as Exhibit C.
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, at fair market value, all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising
or located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other
assets, including inventory and supplies and intangibles, set forth on
the Balance Sheet to reflect operations of the MSO in respect of the
Orthodontic Offices, including depreciation, amortization and other
adjustments of such assets shown on such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of the PC, the
restrictive covenants provided for in Section 3.7 of the Management
Services Agreement and in the applicable Employment Agreement with Dr.
Schneekluth contemplated thereunder, and any goodwill and other
intangible assets set forth on the Balance Sheet, reflecting
amortization or depreciation of the restrictive covenants, and any
goodwill and other intangible assets, such; 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 Offices.
If the PC desires to exercise its Call Option, the 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 PC shall be made by an aggregate payment to
the MSO of an amount equal to the amortized book 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 PC. In the event that the MSO
and the 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 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
amortized book value of such assets to each of the MSO and the PC, and the
amortized book 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 PC.
Notwithstanding the foregoing, in the event that the PC terminates the
Management Services Agreement pursuant to Section 10.1(a)(1) of the Management
Services Agreement and the MSO is not paying the MSO Expenses (as defined in the
Management Services Agreement) as they become due such that the ability of the
PC to continue to practice orthodontics is compromised, the Call Option may be
exercised by the payment by the PC to the MSO of the sum of (i) the book value
of the assets described in Clause (a) of this Section 3 plus (ii) the book value
of the assets described in Clause (b) of this Section 3, less an amount equal to
two-thirds (2/3) of the difference between (y) all management fees paid by the
PC to the MSO pursuant to Schedule 3 of the Management Services Agreement less
(z) the sum of all the MSO Expenses paid by the MSO under the Management
Services Agreement plus the Rebates paid to the PC pursuant to Schedule 3 of the
Management Services Agreement; provided, however, that the amount due under
clause (ii) of this sentence shall not be less than zero.
4. Closing and Delivery. At 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, the PC shall pay cash, or, at
the option of the PC and with the consent of Dr. Schneekluth, a combination of
cash, forgiveness of amounts due to Dr. Schneekluth under the Purchase Note
and/or return of the shares of Omega Common Stock received by Dr. Schneekluth
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 PC of the Call Option, as the case may be. The PC and Dr. Schneekluth shall
execute such documents as may be required by the MSO to assume the liabilities
set forth in Section 2(c) or 3(c), as the case may be, and shall use their
respective best efforts to remove the MSO from any liability with respect to
such repurchased assets and with respect to any property leased or subleased by
the MSO. From and after any such Closing, each party shall provide to the other
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 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. Schneekluth:
(i) the death of Dr. Schneekluth;
(ii) if Dr. Schneekluth is determined to be permanently disabled
so as to be unable to render any professional services on behalf of
the PC, as determined in accordance with paragraph (b) of this Section
5 below;
(iii) if Dr. Schneekluth voluntarily terminates his employment
without first proposing and obtaining the MSO's approval of a proposed
qualified successor orthodontist reasonably acceptable to the MSO on
behalf of the PC;
(iv) if Dr. Schneekluth acts in a criminally or grossly negligent
manner with respect to the performance of professional Orthodontic
services rendered or to be rendered on behalf of the PC;
(v) if Dr. Schneekluth becomes hospitalized for alcohol or drug
abuse;
(vi) if Dr. Schneekluth is convicted of a felony;
(vii) if Dr. Schneekluth 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. Schneekluth's shares of Capital Stock are or are to
be transferred voluntarily or by operation of law to any person who is
a "disqualified person," as defined in the professional corporation
statute of the Laws of the State;
(ix) if Dr. Schneekluth voluntarily files a petition under any
bankruptcy or insolvency law or a petition for the appointment of a
receiver, or makes an assignment for the benefit of creditors;
(x) if Dr. Schneekluth is subjected involuntarily to such a
petition or assignment, or any creditor or other persons obtains an
attachment or other legal or equitable interest in any shares of the
Capital Stock of Dr. Schneekluth and such involuntary petition,
assignment or attachment is not discharged within ninety (90) days
after creation;
(xi) if Dr. Schneekluth is required to transfer any shares of
Capital Stock by reason of a judgment, court order or decree or by
operation of law;
(xii) if Dr. Schneekluth retires within the meaning of Paragraph
(c) of this Section 5; or
(xiii) if Dr. Schneekluth desires to sell more than twenty five
(25%) percent 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 (90) days, (i) prevents Dr. Schneekluth from
performing his duties competently and adequately as determined by the MSO, or
(ii) substantially impairs the PC's or Dr. Schneekluth's ability to practice
orthodontics.
(c) For purposes hereof, "Retirement" of Dr. Schneekluth shall occur on
the date when Dr. Schneekluth voluntarily withdraws from the practice of
orthodontics at whatever age or for whatever reason and notifies the 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, 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. Schneekluth (or his successor or representative), specifying the
name, address and information showing the qualifications and suitability of the
Designated Successor to conduct or perform professional services on behalf of
the PC and number of shares of Capital Stock of Dr. Schneekluth as to which the
Successor Designation Option is being exercised. Upon the MSO's exercise of the
Successor Designation Option in respect of any event described in Section
5(a)(iii) or (x) as to all of the shares of Capital Stock of Dr. Schneekluth,
Dr. Schneekluth shall execute a Non-Competition Agreement in the form attached
hereto as Exhibit C. The MSO may, at any time, cancel any Successor Designation
Exercise Notice sent by it hereunder.
8. Right of First Refusal and Sale of Stock. If Dr. Schneekluth desires
to sell any of the Capital Stock to another orthodontist (a "Purchaser"), he
shall first give notice to the MSO of his intent to sell such Capital Stock
("Notice of Sale"), giving to the MSO such information as shall be reasonably
requested by it to ascertain the qualifications and suitability of the Purchaser
to conduct or to perform professional services on behalf of the PC and the terms
and conditions of such proposed sale to the Purchaser. If the sale of such
Capital Stock represents twenty five (25%) percent or less of the Capital Stock,
then, unless the MSO or OMEGA reasonably believes such Purchaser to be
unacceptable, such transfer shall not constitute a Transfer Event. If such sale
is greater the twenty five (25%) percent of the Capital Stock then upon receipt
of such Notice, the Successor Designation Option of the MSO shall become
exercisable for a period of three (3) months, provided however, that the
exercise price and terms of purchase of the Capital Stock shall be no less
favorable to Dr. Schneekluth than those set forth in the Notice of Sale. In the
event the Successor Designation Option is not exercised during such three (3)
month period, Dr. Schneekluth may sell the Capital Stock to the Purchaser 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. Schneekluth
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 PC pursuant to Article 6 and Schedule 3 of the Management Services Agreement
for the twelve (12) calendar months immediately preceding the month in which the
Successor Designation Exercise Notice is delivered to Dr. Schneekluth (or his
successor or representative) multiplied by (b) a fraction, the numerator of
which is the number of shares of the Capital Stock to be purchased and the
denominator of which is the 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 negotiable promissory note, secured by the Capital Stock
of Dr. Schneekluth. The note shall be for a term of five years, with interest
payable quarterly in arrears at the mid-term Applicable Federal Rate with
monthly compounding published by the Internal Revenue Service from time to time
in accordance with Section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision of the Code, provided however,
that the Designated Successor shall be permitted to prepay such note at any
time. Principal shall be payable in five equal annual installments commencing
six months after the closing date.
(c) Purchase From Dr. Schneekluth's Estate.
(i) Upon the death of Dr. Schneekluth and receipt of
notice of a Successor Designation Exercise Notice, Dr.
Schneekluth's personal representative shall apply for and
obtain any necessary court approval or confirmation of the
sale of Dr. Schneekluth's shares of Capital Stock pursuant
to this Agreement. The representative of the estate of Dr.
Schneekluth and the Designated Successor shall complete such
sale as soon after the date of death as practicable, but no
later than 180 days after such event.
(ii) The death of Dr. Schneekluth's spouse, if any,
shall not be considered the death of Dr. Schneekluth for
purposes of this Agreement.
(iii) The estate of Dr. Schneekluth shall bear, and
hold the PC harmless from, all costs and expenses incurred
as a result of securing any court orders, court decrees,
court approvals or inheritance tax clearances required to
enable the estate of Dr. Schneekluth to transfer to the
Designated Successor full legal and equitable tax-free title
to the Capital Stock of Dr. Schneekluth.
(d) Other Purchases. Except for purchases of Capital Stock
upon exercise of the 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. Schneekluth hereby consents to
the acquisition and maintenance in force of a disability insurance policy and a
life insurance policy by the MSO and OMEGA on Dr. Schneekluth ("Insurance
Policies"). The life insurance policy may be in an aggregate face amount of up
to three times Dr. Schneekluth's income, as shown on the W-2 Form prepared by
the PC for the most recent calendar year. Dr. Schneekluth agrees, at the
election of the MSO and OMEGA, to take whatever actions are necessary to assist
in the acquisition of any such Insurance Policy by the MSO and OMEGA.
(b) The Insurance Policies shall name the MSO and OMEGA 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 and OMEGA shall pay all premiums falling due
on all such policies. Such payments shall be made by the MSO or OMEGA and shall
not be considered MSO expenses pursuant 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. Schneekluth each represent and
warrant to the MSO and OMEGA that as of the day and year first above written and
during the term of this Agreement, Exhibit A is a true and complete listing of
the Capital Stock, as revised from time to time pursuant to this Agreement.
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. Schneekluth shall not sell,
assign, transfer, pledge or otherwise dispose (including by gift or otherwise)
of any of his shares of the Capital Stock.
(b) Issuance of Stock; Change in Ownership; Mergers and
Consolidation. Without the prior written consent of the MSO, Dr. Schneekluth
shall not permit the 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.
Schneekluth shall execute and deliver to Richard M/ Rosenthal, Esq., Encino
Office Park, Building II, 6345 Balboa Blvd., Suite 330, Encino, CA 91316-1524,
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. Schneekluth, with
copies provid3ed to the MSO. Upon execution of this Agreement, Dr. Schneekluth
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. Schneekluth. 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 August, ___, 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
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.
Schneekluth 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 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. Schneekluth.
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. Schneekluth, and the MSO and OMEGA shall not disclose the contents of
this Agreement or the negotiations leading to this Agreement to third parties
without the prior written consent of the other parties. The MSO shall ensure
that all of the assignees likewise comply with the obligations of
confidentiality imposed by this Section, except that the MSO and the assignees
may disclose the contents of such to the extent required by law or otherwise to
their respective agents, representatives, contractors, and employees to the
extent necessary to exercise their respective rights or perform their respective
obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and
year first above written and shall terminate upon the termination of the
Management Services Agreement or the exercise (and consummation of the
transaction provided for upon such exercise) of the Put Option, the Call Option
or the 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. Schneekluth shall
comply with all applicable requirements of applicable state law and regulations,
and other licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their
respective rights and the performance of their respective obligations under this
Agreement, the PC and Dr. Schneekluth on the one hand and OMEGA and the MSO (or
any assignee of the MSO) on the other hand are acting in the capacity of the
grantor and grantee of an option to purchase or to designate the purchase of
shares of Capital Stock and nothing in this Agreement is intended nor shall be
construed to create an employer/employee, partnership, joint venture or a
landlord/tenant relationship between or among the parties.
(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.
Schneekluth or the 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 or to such financing institutions as may be required by the terms of
credit agreements which may be entered into from time to time by Omega for the
obtaining of addition financing for 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. Schneekluth, to:
CLARK E. Schneekluth, D.D.S., M.S., Inc.
Clark E. Schneekluth, D.D.S.
511 Warner Avenue, Suite 104
Huntington Beach, California 92649
If to the OMEGA, to:
Omega Orthodontics, Inc.
3621 Silver Spur Lane
Acton, California 93510
Attn: Robert Schulhof
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(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 PC, Dr. Schneekluth and the MSO and
OMEGA each shall bear their own expenses, including, without limitation,
attorneys' and accountants' fees, incurred in connection with the preparation of
this Agreement and the 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) Remedies. The remedies specified in this Agreement are the
exclusive remedies for liabilities of the parties arising under this Agreement.
The limitations on liability, releases from liability, and waiver and indemnity
provisions expressed in this Agreement shall apply to the full extent permitted
by law, even in the event of a parties' fault, negligence (in whole or in part),
strict liability, or other basis of liability, and whether liability is founded
in contract, tort, or otherwise, and shall extend to the parties and its
affiliated companies and its and their shareholders, directors, officers and
employees.
18. Notwithstanding anything to the contrary contained in this
Agreement, or any Schedule or Exhibit hereto, in no event shall the MSO or OMEGA
or their officers, directors or employees be liable for any form of indirect,
special, incidental or consequential damages, whether such damages arise in
contract or tort, irrespective of fault, negligence or strict liability.
19. Dispute Resolution.
Any dispute which arises as a result of this Agreement shall be settled
in accordance with the terms set forth in Article 14 of the Management Services
Agreement executed on even date herewith.
IN WITNESS WHEREOF, the PC, Dr. Schneekluth, MSO and OMEGA have executed this
Agreement as of the date first above written by their duly authorized
representatives as set forth below.
"PC"
CLARK E. SCHNEEKLUTH, D.D.S., M.S., Inc.
an California corporation
By: ______________________________
Clark E. Schneekluth, D.D.S., President
DR. SCHNEEKLUTH
______________________________
Clark E. Schneekluth, D.D.S.,
"MSO"
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
a Delaware corporation
By: ______________________________
Robert J. Schulhof, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:_______________________________
Robert J. Schulhof, President and
Chief Executive Officer
<PAGE>
SPOUSAL JOINDER AND CONSENT
I am the spouse of Clark E. Schneekluth, D.D.S., the sole Stockholder
of Clark E. Schneekluth, D.D.S., M.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 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 August, 1998.
Signature:
Printed or Typed Name: Sherilyn F. Schneekluth
<PAGE>
EXHIBIT A
ORTHODONTIC OFFICES
The offices and related leasehold improvements constituting the Orthodontic
Offices are located at 511 Warner Avenue, Suite 104, Huntington Beach,
California 92649 ("Huntington Beach") and 5251 and 5253 Lampson Ave., Garden
Grove, California ("Garden Grove").
<PAGE>
EXHIBIT B
STOCK
The authorized capital stock of the PC is ______ shares of common
stock, $0.00 par value per share. _______ shares of the common stock of the PC
are issued and are outstanding, all of which shares are evidenced by Certificate
No. 1 issued in the name of Clark E. Schneekluth, D.D.S.
<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is made as of this _____ day of
August, 1998 by and between Clark E. Schneekluth, D.D.S., ("Dr. Schneekluth"),
who is duly licensed to practice orthodontics in the state of California, and
Clark E. Schneekluth, D.D.S. M.S., Inc., a professional corporation (the "PC")
incorporated under the laws of the State and Omega Orthodontics of Woodland
Hills, Inc., a Delaware Corporation.
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 August ___, 1998 by
and among Dr. Schneekluth, the PC, Omega Orthodontics, Inc., a Delaware
corporation ("Omega") and Omega Orthodontics of Woodland Hills Inc., a Delaware
corporation (the "MSO") which is a wholly owned subsidiary of Omega.
RECITALS
A. Dr. Schneekluth is the sole owner of the Capital Stock of the 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 PC on terms and conditions acceptable to
and approved by the MSO.
C. As a condition to the transfer by Dr. Schneekluth of his Capital
Stock to the Purchaser pursuant to Section 8 of the Stock Agreement, Dr.
Schneekluth has agreed to enter into an agreement in the form of this Agreement
to be delivered to the 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. Schneekluth's Covenants. During the term of this Agreement in
the Service Area described in Section 4 below, Dr. Schneekluth shall not
(directly or indirectly through any business, enterprise, venture, partnership,
corporation or any other entity controlled directly or indirectly by Dr.
Schneekluth, 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. Schneekluth 's
engagement or participation, would become, competitive with the 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.
Schneekluth or any person employed or under contract to Dr. Schneekluth (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 PC or any of its
affiliates) from any present or potential patient, customer (including all third
party payors) of Dr.
Schneekluth, the 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 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 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
PC, the MSO or their respective affiliates to withdraw, curtail or cancel its
business dealings with the PC, the MSO or their respective affiliates, or take
any actions that might impair the relations of the PC, the MSO or any of their
respective affiliates and their respective suppliers, patients, customers,
employees or others.
2. Dr. Schneekluth's Representations. Dr. Schneekluth 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 PC, the
MSO and Omega; and (iii) the PC, the MSO and Omega would not have consented to
such sale in the absence of such restrictions. Dr. Schneekluth acknowledges that
this Agreement is subject to all representations, warranties and covenants of
Dr. Schneekluth in the Stock Agreement.
3. Service Area. The Service Area to which Dr. Schneekluth '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. Schneekluth, the 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. Schneekluth 's agreement not to
compete and other covenants herein, the PC shall pay Dr. Schneekluth upon the
execution of this Agreement by the PC the amount of One Thousand Dollars
($1,000).
6. Remedies. In the event of a breach by Dr. Schneekluth of this
Agreement, the PC shall be entitled to receive, on behalf of the MSO, from Dr.
Schneekluth, 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.
Schneekluth 's income, as shown on the W-2 form prepared by the PC for the most
recent calendar year or (b) $300,000. Any amounts received by the PC pursuant to
the prior sentence shall be paid to the MSO by the PC immediately following
receipt by the 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.
Schneekluth of this Agreement will cause irreparable damage to the 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. Schneekluth agrees that in such
case, the PC shall be entitled to injunctive relief and Dr. Schneekluth agrees
not to assert in any proceeding that the PC has an adequate remedy at law. Dr.
Schneekluth shall pay the reasonable fees and expenses, including attorneys
fees, incurred by the 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 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 PC may assign its rights, interests and
obligations to the MSO, Omega and their affiliates without the consent of Dr.
Schneekluth. 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. Schneekluth: Dr. Clark E. Schneekluth, D.D.S.
511 Warner Avenue, Suite 104
Huntington Beach, California 92649
If to the PC: Dr. CLARK E. Schneekluth, D.D.S., M.S., INC.
Dr. Clark E. Schneekluth, D.D.S.
511 Warner Avenue, Suite 104
Huntington Beach, California 92649
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(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 PC or Dr. Schneekluth
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.
"PC"
Clark E. Schneekluth, D.D.S., M.S., Inc.
an California corporation
By: ______________________________
Clark E. Schneekluth, D.D.S., President
DR. SCHNEEKLUTH
______________________________
Clark E. Schneekluth, D.D.S.,
ACKNOWLEDGED BY:
"MSO"
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
a Delaware corporation
By: ______________________________
Robert J. Schulhof, President
MANAGEMENT SERVICES AGREEMENT
BETWEEN
----------------------------
(the "New PC")
AND
Omega Orthodontics of Reno, Inc.
(the "MSO")
AND
Omega Orthodontics, Inc.
("OMEGA")
<PAGE>
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.....................................3
2.7 Billing, Collection................................................4
2.8 Disbursement of Funds..............................................4
2.9 MSO Expenses.......................................................5
2.10 Credit Reports....................................................6
2.11 Accounting; Bookkeeping and Reports...............................6
2.12 Marketing.........................................................7
2.13 Complaints........................................................7
2.14 Practice Laws.....................................................7
2.15 Monthly Meetings..................................................7
2.16 Maintenance and Cleaning Services.................................7
2.17 Licenses and Permits..............................................7
2.18 Insurance.........................................................7
2.19 Practice Transition and Associate Selection.......................8
ARTICLE 3 DUTIES OF THE NEW PC.........................................8
3.1 General............................................................8
3.2 Employment of the Endodontists 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.....................................................13
ARTICLE 6 COMPENSATION...............................................13
ARTICLE 7 SECURITY INTEREST..........................................14
ARTICLE 8 COVENANTS..................................................14
8.1 New PC's Covenants................................................14
8.2 MSO's Covenants...................................................15
ARTICLE 9 INSURANCE AND INDEMNITY.....................................16
9.1 Insurance to be Maintained by the New PC..........................16
9.2 Insurance to be Maintained by the MSO.............................16
9.3 Tail Insurance Coverage...........................................16
9.4 Additional Insureds...............................................16
9.5 Indemnification...................................................16
ARTICLE 10 TERMINATION...............................................17
10.1 Termination by the New PC........................................17
10.2 Termination by MSO...............................................17
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...................18
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP.......................19
ARTICLE 13 MISCELLANEOUS.............................................19
13.1 Access to Records................................................19
13.2 Patient Records..................................................19
13.3 The New PC's Control Over the Endodontic Practice................19
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.............................20
14.1 Alternative Dispute Resolution...................................20
14.2 Waiver of Jury...................................................20
ARTICLE 15 GENERAL PROVISIONS........................................21
15.1 Notices..........................................................21
15.2 Confidentiality..................................................21
15.3 Contract Modifications for Prospective Legal Events..............21
15.4 Remedies Cumulative..............................................22
15.5 No Obligation to Third Parties...................................22
15.6 Entire Agreement.................................................22
15.7 Assignment.......................................................22
15.8 Attorneys' Fees..................................................22
15.9 Governing Law....................................................22
15.10 Events Excusing Performance.....................................23
15.11 Compliance with Applicable Laws.................................23
15.12 Language Construction...........................................23
15.13 Amendments......................................................23
15.14 Severability....................................................23
15.15 No Waiver.......................................................23
15.16 Captions........................................................23
15.17 Counterparts....................................................23
SCHEDULE 1 THE 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
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of
___________, 1997, by and between ____________________, Inc., a professional
corporation (the "New PC") incorporated under the laws of the State of 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 _______________, 1997, 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:
<PAGE>
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 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 not less than five (5) years following the date of this Agreement.
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.
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 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 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 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) 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 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.
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 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. Gray and the Endodontists (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 endodontic 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. 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 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:
4101 Caughlin Square - Suite 2
Reno, Nevada 89509
Attn: Rodney A. Gray, 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 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.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
as of the day and year first above written.
NEW PC:
By:_______________________________
Name: Rodney A. Gray
Title: President
MSO:
OMEGA ORTHODONTICS OF RENO, INC.
By:_______________________________
Name: Robert J. Schulhof
Title: President
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name: Robert J. Schulhof
Title: President
<PAGE>
SCHEDULE 1
THE ENDODONTISTS
Name and Address
Rodney A. Gray, D.D.S.
4101 Caughlin Square - Suite 2
Reno, Nevada 89509
<PAGE>
SCHEDULE 2
ENDODONTIC OFFICES AND SERVICES
[Dr. Gray Attach]
<PAGE>
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, monthly Management Fees in an
amount equal to Seventy-Five Percent (75%) of the Practice Revenues, and the New
PC shall be entitled to Twenty-Five Percent (25%) of such Practice Revenues,
except as the parties may otherwise agree from time to time in writing;
provided, however, that in no event shall the MSO receive less than $200,000 in
Management Fees 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 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 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 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.
<PAGE>
EXHIBIT A
ENDODONTIC OFFICES - MASTER LEASE
[Dr. Gray Attach]
<PAGE>
EXHIBIT B
PRACTICE PROVIDERS
[Dr. Gray Attach]
<PAGE>
EXHIBIT C
New PC'S AFFIDAVIT
<PAGE>
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 ______________ (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 ________________, 1997, 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
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
Twenty-Five Percent (25%) of "Practice Revenues" 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 _________________ this ____ day of _____________, 1997.
_______________________________
Rodney A. Gray, D.D.S.
STATE OF NEVADA
___________________, ss. ________________, 1997
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:
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by _____________________, PC, 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:
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.
<PAGE>
EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within
such longer period of time as the parties may mutually agree, the parties have
not succeeded in negotiating a resolution of the claim or dispute or agreeing on
a dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
the Center for Public Resources, New York, New York ("CPR") Panels of Neutrals
or the American Arbitration Association ("AAA"), with the assistance of CPR or
AAA, unless the parties agree otherwise in finding a mutually acceptable
mediator.
5. The New PC and the MSO shall each bear 50% of the fees and costs of the
mediator and any fees and costs of CPR or AAA.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR or AAA.
B. Mediation procedures
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 B
NON-NEGOTIABLE PROMISSORY NOTE
$110,000 Acton, California
_________ ___, 1998
FOR VALUE RECEIVED, Omega Orthodontics, Inc., a Delaware corporation
("Omega"), promises to pay to Dr. John F. Whitaker ("Dr. Whitaker") at 13252
Hawthorne Boulevard, Suite 200,Hawthorne, California 90250 or other location
specified by Dr. Whitaker in writing, One Hundred Ten Thousand Dollars
($110,000) 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. Whitaker, 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. Whitaker.
5. Expenses. Omega agrees to pay all expenses, including reasonable
attorney's fees, which Dr. Whitaker may incur in effecting collection of this
Note upon default or at maturity.
6. Delays. Dr. Whitaker 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. Whitaker. 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.
Whitaker 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. Whitaker 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.
STATEMENT RE COMPUTATION OF NET LOSS PER SHARE
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Net loss ($ 525,499) ($ 3,643,125)
========== ============
Basic and diluted net loss per share ($ 0.11) ($ 1.59)
========== ============
Weighted average number of common shares
outstanding 4,895,394 2,289,623
========== ============
The Company reports earnings (loss) per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share and Securities
and Exchange Commission (SEC) Staff Accounting Bulletin No. 98 (SAB 98).
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
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. Basic and diluted loss per share do not include options and
warrants to purchase 2,323,333 shares of common stock in 1998 and 2,303,333
shares of common stock in 1997 because the effects are antidilutive.
OMEGA SUBSIDIARIES
1. Omega Orthodontics of Champaign, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer
Joel Glovsky - Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
2. Omega Orthodontics of Colorado, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer
Joel Glovsky - Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
3. Omega Orthodontics of Williamsport, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer/Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
4. Omega Orthodontics of Woodland Hills, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer
Joel Glovsky - Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
5. Omega Orthodontics of Goodyear, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer
Joel Glovsky - Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
6. Omega Orthodontics of Huntington Beach, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer
Joel Glovsky - Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
7. Omega Orthodontics of Reno, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer/Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
8. Omega Orthodontics of Watertown, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer/Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
9. Omega Orthodontics of Conyers, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer/Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
10. Omega Orthodontics of Austin, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer/Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
11. Omega Orthodontics of Elko, Inc.
Officers:
Robert J. Schulhof - President/Treasurer
Edward M. Mulherin - Chief Financial Officer/Secretary
Directors:
Robert J. Schulhof
Joel Glovsky
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 982,157
<SECURITIES> 0
<RECEIVABLES> 2,607,574
<ALLOWANCES> (121,583)
<INVENTORY> 0
<CURRENT-ASSETS> 3,781,695
<PP&E> 908,484
<DEPRECIATION> 144,072
<TOTAL-ASSETS> 14,454,297
<CURRENT-LIABILITIES> 2,717,929
<BONDS> 0
0
0
<COMMON> 50,526
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,454,297
<SALES> 7,387,585
<TOTAL-REVENUES> 7,387,585
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,950,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,800
<INCOME-PRETAX> (525,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (525,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (525,499)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
