<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997.
REGISTRATION NO. 333-29435
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ORTHALLIANCE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8741 95-4632134
(State or other jurisdiction (Primary Standard Industrial (I.R.S. employer
of incorporation or Classification Code Number) identification no.)
organization)
</TABLE>
23848 HAWTHORNE BOULEVARD, SUITE 200, TORRANCE, CALIFORNIA 90505
(310) 791-5656
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
SAM WESTOVER
CHIEF EXECUTIVE OFFICER
ORTHALLIANCE, INC.
23848 HAWTHORNE BOULEVARD, SUITE 200
TORRANCE, CALIFORNIA 90505
(310) 791-5656
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES OF ALL CORRESPONDENCE TO:
PAUL A. QUIROS, ESQ.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
FIRST UNION PLAZA, SUITE 1400
999 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
(404) 817-6000
(404) 817-6050 (FAX)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
2,500,000 SHARES
LOGO ORTHALLIANCE
CLASS A COMMON STOCK
---------------------
This Prospectus covers the offer and sale of up to 2,500,000 shares of Class
A Common Stock, par value $.001 per share ("Common Stock"), of OrthAlliance,
Inc. ("OrthAlliance" or the "Company"), which OrthAlliance may issue from time
to time in connection with the future acquisitions of certain operating assets
of, or the stock of entities holding certain operating assets of, orthodontic
practices (the "Future Transfers") in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"), or as otherwise permitted under the Securities Act.
OrthAlliance expects that the terms upon which it may issue the shares in
connection with Future Transfers will be determined through negotiations with
the owners of the orthodontic practices whose stock or assets are to be acquired
in such Future Transfers. OrthAlliance expects that the shares issued will be
valued at prices reasonably related to market prices for the Common Stock
prevailing either at the time an acquisition agreement is executed or at the
time a Future Transfer is consummated.
Persons receiving Common Stock in connection with Future Transfers may be
contractually required to hold all or some portion of the Common Stock for some
period of time. Initially, the Company will issue Common Stock in connection
with Future Transfers subject to a lock-up period of 180 days after the date of
the prospectus related to the Company's initial public offering of 2,600,000
shares of Common Stock (the "IPO"). See "Prospectus Summary -- Future
Transfers." In addition, pursuant to the provisions of Rule 145 under the
Securities Act, the volume limitations and certain other requirements of Rule
144 under the Securities Act will apply to resales of those shares by affiliates
of the businesses the Company acquires for a period of two years. See "Plan of
Distribution."
If a Future Transfer has a material financial effect upon the Company, the
Company will file a current report on Form 8-K, or if it is not eligible to
incorporate such a report by reference, a post-effective amendment to the
Registration Statement of which this Prospectus forms a part, after such Future
Transfer but prior to the consummation of additional Future Transfers utilizing
this Prospectus, containing financial and other information about the Future
Transfer that would be material to subsequent acquirors of Common Stock offered
hereby, including pro forma information for the Company and historical financial
information about the acquired orthodontic practice. The Company will also file
a current report on Form 8-K, or if it is not eligible to incorporate such a
report by reference, a post-effective amendment to the Registration Statement of
which this Prospectus forms a part, if a Future Transfer does not by itself have
a material effect upon OrthAlliance, but when aggregated with other acquisitions
(for which such information has not been filed) since the date of the Company's
most recent audited financial statements, would have such a material effect.
OrthAlliance filed a Registration Statement on Form S-1 (Registration No.
333-27143), as amended, with the Securities and Exchange Commission (the
"Commission") relating to the IPO that was declared effective on August 20,
1997. Upon completion of the IPO, 10,232,985 shares of Common Stock will be
issued and outstanding. The Common Stock has been approved for listing on The
Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the
symbol "ORAL."
All expenses of this offering (this "Offering") will be paid by
OrthAlliance. No underwriting discounts or commissions will be paid in
connection with the issuance of shares by OrthAlliance in business combination
transactions, although finder's fees may be paid with respect to specific
acquisitions. Any person receiving a finder's fee may be deemed to be an
Underwriter within the meaning of the Securities Act.
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AUGUST 22, 1997
<PAGE> 3
[ORTHALLIANCE, INC. MAP]
2
<PAGE> 4
PROSPECTUS SUMMARY
Simultaneously with and as a condition to the closing of the IPO, 55
separate orthodontic practices (collectively, the "Founding Practices") will
transfer certain operating assets to OrthAlliance in exchange for cash and
shares of Common Stock (in accordance with Staff Accounting Bulletin No. 48) and
OrthAlliance will become a party to long-term management or consulting services
agreements with the Founding Practices (the "Transfers").
As a result of the merger of each of Premier Orthodontic Group, Inc.
("Premier") and US Orthodontic Care, Inc. ("USOC") with and into OrthAlliance,
effective prior to the closing of the IPO (the "Merger"), OrthAlliance succeeds
to the rights of Premier and USOC under agreements with the Founding Practices.
See "Certain Transactions." The term "Allied Practice" includes each of the
Founding Practices and any orthodontic practice with which the Company enters
into long-term management or consulting services agreements in the future.
Unless otherwise indicated by the context, references herein to practice
management services, agreements or rights include consulting and other similar
arrangements, which the Company has or will enter into with certain Allied
Practices to comply with applicable regulations regarding practice management in
certain states. As used herein, the term "Allied Orthodontists" refers to
orthodontists affiliated with an Allied Practice. The Company has conducted no
operations and generated no revenues to date.
THE COMPANY
OrthAlliance was organized to create a national provider of practice
management services to orthodontic practices in the United States. After the
closing of the IPO, the Company will manage the business aspects of the Allied
Practices (subject to applicable state law), thereby allowing Allied
Orthodontists to focus on delivering cost-effective, high quality patient care,
and will provide capital for the development and growth of such practices. The
Company will affiliate with Allied Practices pursuant to long-term management
services agreements and will generate revenues by providing management,
marketing and development services to Allied Practices. The Company intends to
aggressively expand its network of Allied Practices by acquiring certain
operating assets of and entering into long-term management services agreements
with additional practices throughout the United States (herein sometimes
referred to as the "affiliation" with other practices.)
The Company has entered into definitive agreements, to be consummated
simultaneously with the closing of the IPO, to acquire certain operating assets
of, or the stock of entities holding certain operating assets of, and enter into
long-term management services agreements with, each of the 55 Founding
Practices, which include 82 orthodontists operating 147 offices located in 16
states. See "The Company" and "Business -- Agreements with Allied Practices and
Allied Orthodontists." Management believes that the Founding Practices are
leading practices in their markets, and the Founding Practices were selected
based on a variety of factors, including size, profitability, historical growth
and reputation for high quality care, both among local consumers of orthodontic
services and within the orthodontic services industry.
The United States orthodontic industry is highly fragmented, with over 90%
of the approximately 9,000 practicing orthodontists in the United States
operating as sole practitioners. Management believes that less than 2% of the
orthodontists currently practicing in the United States are affiliated with
publicly held practice management companies.
Management believes that the Company's operating strategy will enable
Allied Practices to compete more effectively with and realize greater
profitability than traditional orthodontic practices, thereby inducing
additional orthodontists to affiliate with the Company. Key elements of the
Company's operating strategy are:
- Emphasizing quality patient care by (i) relieving the Allied
Orthodontists from various time-consuming administrative
responsibilities, (ii) affiliating with high quality practices
conducted by orthodontists who have completed accredited graduate
orthodontic training programs, and (iii) recommending practice
standards, procedures and protocols under the direction of the
Company's board of advisors, composed of the Allied Orthodontists in
the Founding Practices;
3
<PAGE> 5
- Capitalizing on the best demonstrated practices of Allied
Orthodontists through identification and promotion of successful
practice-level strategies including, but not limited to, treatment,
delivery of patient care, marketing, financing and cost control
strategies;
- Achieving operating efficiencies and economies of scale through (i)
the implementation of national purchasing discounts for professional
and clerical supplies and equipment, (ii) the reduction of certain
expenses common to all Allied Practices, including, but not limited
to, insurance and employee benefits, and (iii) work flow and patient
flow enhancements and programs; and
- Increasing market penetration and expansion through (i) local
marketing programs, supported by demographic and economic analysis,
and (ii) patient payment plans designed to enhance the affordability
of orthodontic services.
There can be no assurance that the Company will be able to implement
successfully these operating strategies. Costs could increase if operating
efficiencies and economies of scale are not realized; however, management
believes that improved quality patient care and the use of best demonstrated
practices which allow the Allied Orthodontists to increase the number of
patients treated could result in higher patient revenue.
The Company intends to implement a growth strategy focused on (i)
affiliating with additional orthodontic practices that fit the OrthAlliance
model of high quality and strong financial performance; (ii) expanding Allied
Practices by providing capital, support and consultation for satellite office
expansion; (iii) assisting the Allied Practices with their internal growth by
increasing gross revenues through increased patient volume; and (iv) enhancing
profitability through operational efficiencies.
FUTURE TRANSFERS
The Company plans to use the shares of Common Stock from this Offering in
connection with Future Transfers. The Company has entered into negotiations with
four orthodontic practices with four orthodontists operating 12 offices in four
states. The aggregate consideration to be paid by the Company with respect to
these pending transfers, if consummated, will be approximately $3.1 million,
payable up to 20% in cash and the remainder with shares of Common Stock valued
at either (i) the initial public offering price for pending transfers closed
within seven days after the closing of the IPO, or (ii) the average closing
price of the Common Stock as reported on the Nasdaq National Market for the five
consecutive trading days ending two days prior to the closing date for pending
transfers closed after such seventh trading day. The aggregate consideration to
be paid by the Company with respect to additional Future Transfers will
generally be payable up to 20% in cash and the remainder with shares of Common
Stock valued at prices reasonably related to market prices for the Common Stock
prevailing either at the time an acquisition agreement is executed or at the
time a Future Transfer is consummated. Initially, Common Stock issued by the
Company in Future Transfers will be subject to lockup agreements with the
underwriters of the IPO, with lockup periods of 180 days from the date of the
prospectus relating to the IPO. Unlike the Founding Practices, which shall be
accounted for in accordance with Staff Accounting Bulletin No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders" ("SAB 48"), the Future
Transfers (including the pending transfers) will be accounted for as asset
acquisitions at fair market value and will result in subsequent annual noncash
amortization charges for intangible assets in the Company's statement of
operations.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the
Company.................. 2,500,000 shares of Common Stock to be issued by
the Company in connection with Future Transfers in
accordance with Rule 415(a)(1)(viii) of the
Securities Act.
Common Stock to be
outstanding after the
IPO...................... 10,232,985 shares(1)
Class B Common Stock to be
outstanding after the
IPO...................... 250,000 shares
Class B Common Stock....... In connection with the Merger, 250,000 shares of
Class B Common Stock will be issued to the
stockholders of USOC and Premier as part of the
Merger consideration. The stockholders of USOC and
Premier are responsible for the organization of the
Company, and the Class B Common Stock was created
to allow the stockholders of USOC and Premier to
receive additional shares of Common Stock provided
that the market price of the Common Stock
appreciates to the various Conversion Prices
described below. No other shares of Class B Common
Stock will be authorized or issued. Holders of
Class B Common Stock are entitled to one vote per
share and such shares shall be voted with the
Common Stock on all matters presented to the
holders of Common Stock. The shares of Class B
Common Stock are not transferable, except to the
holder's spouse, parents, siblings, lineal
descendants, a trust for the benefit of any such
person or as determined by will or the laws of
descent. See "Description of Capital Stock."
Conversion of Class B
Common Stock............. At any time following 180 days from the date of the
prospectus relating to the IPO, each share of Class
B Common Stock shall automatically convert into
Common Stock (i) at the ratio of eight shares of
Common Stock for each share of Class B Common Stock
upon the attainment of certain average closing
price calculations for the Common Stock (the
"Conversion Prices"), as determined on the Nasdaq
National Market, other over-the-counter market or
an exchange, as then applicable (the "Trading
Market"), or (ii) if not converted pursuant to
subparagraph (i), at the ratio of one share of
Common Stock for each share of Class B Common Stock
upon the sixth anniversary of the date of the
prospectus relating to the IPO (the "Final
Conversion Date"). The maximum number of shares of
Common Stock that may be issued upon conversion of
the Class B Common Stock is 2,000,000. The shares
of Class B Common Stock convertible pursuant to
subparagraph (i) above will convert in five
increments of up to 50,000 shares of Class B Common
Stock (20% of the total number of shares of Class B
Common Stock issued) upon the attainment of each of
the five specified Conversion Prices. At each
automatic conversion, each holder of Class B Common
Stock will be deemed to have converted a pro rata
share of such Class B Common Stock then
outstanding. The Conversion Prices shall be
established at premiums to the initial public
offering price in the IPO. Each Conversion Price
will be deemed to have been achieved at the end of
the trading day on which the average closing price
of the Common Stock for the preceding 20
consecutive trading days exceeds such Conversion
Price. The closing prices will be those reported on
the Trading Market. The initial Conversion Price is
equal to 150% of the price to public
5
<PAGE> 7
in the IPO, and each of the subsequent Conversion
Prices is equal to 120% of the preceding Conversion
Price. Therefore, the five Conversion Prices at
which up to 50,000 shares of the outstanding Class
B Common Stock shall be automatically converted to
Common Stock are $18.00, $21.60, $25.92, $31.10 and
$37.32, respectively. If any Conversion Prices are
attained within 180 days after the date of the
prospectus relating to the IPO, the portion of
shares of Class B Common Stock that would have
otherwise converted, shall automatically convert
into Common Stock on the 181st day after the date
of the prospectus relating to the IPO. In the event
that there are any shares of Class B Common Stock
outstanding on the Final Conversion Date, all such
shares shall automatically convert into an equal
number of shares of Common Stock. The holders of
the Class B Common Stock may convert each share of
Class B Common Stock into one share of Common Stock
at any time after 180 days from the date of the
prospectus relating to the IPO but on or before the
Final Conversion Date.
Nasdaq National
Market symbol............ ORAL
- ---------------
(1) Includes (i) 1,750,000 shares of Common Stock issued by OrthAlliance in
connection with the Merger, (ii) 5,882,985 shares of Common Stock to be
issued in connection with the Transfers and (iii) 2,600,000 shares of Common
Stock issued in the IPO, but excludes 1,193,622 shares of Common Stock
issuable pursuant to options granted for the purchase of Common Stock under
the Company's stock option plans or issuable upon the exercise of
outstanding warrants to purchase shares of Common Stock. See "The Company,"
"Management -- Stock Plans," "Certain Transactions" and "Description of
Capital Stock -- Warrants."
The preceding summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes the completion of the Merger and the IPO. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
Unless otherwise indicated, the industry information used in this
Prospectus is derived from the 1995 Journal of Clinical Orthodontists
Orthodontic Practice Study (the "JCO Study") and relates to 1994 unless
otherwise indicated. Comparable information for 1995 and 1996 is not expected to
be available until the release of the 1997 JCO Study in late 1997 or early 1998.
The information compiled in the 1995 JCO Study relates to orthodontists who have
completed accredited graduate orthodontic training programs and does not include
general dentists who also perform certain orthodontic services.
6
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following information is derived from the audited and unaudited
financial statements of OrthAlliance included elsewhere in this Prospectus.
Except as indicated, this information does not reflect the effects of the
Merger, the Transfers, the IPO or the Offering. For certain information
concerning the Transfers of the Founding Practices, see Note 5 of Notes to
Financial Statements of the Company.
<TABLE>
<CAPTION>
THE PERIOD
FROM OCTOBER 21,
1996 TO SIX MONTHS
DECEMBER 31, ENDED
1996 JUNE 30, 1997
---------------- -------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenue................................................. $ -- $ --
Total expenses(2)........................................... -- 4,090
Operating loss.............................................. -- 4,090
---------- ----------
Net loss.......................................... $ -- $ 4,090
========== ==========
Net loss per share................................ $ -- $ .39
========== ==========
Number of shares used in net loss per share calculation..... -- 10,533
========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
HISTORICAL AS ADJUSTED(3)
---------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $ 10,229
Working capital............................................. (900) 14,815
Total assets................................................ -- 21,037
Long-term debt.............................................. -- --
Stockholders' (deficit) equity.............................. (900) 17,877
</TABLE>
- ---------------
(1) OrthAlliance has conducted no significant operations to date and will not
conduct significant operations until the Merger, the Transfers and the IPO
are completed. The Company was incorporated on October 21, 1996.
(2) Represents compensation expense related to the issuance of warrants and to
consulting services. See Note 1 and Note 3 of Notes to Financial Statements
of the Company.
(3) As adjusted gives effect to the Merger, the Transfers and the sale of 2.6
million shares of Common Stock offered by the Company in the IPO and the
application of the estimated net proceeds therefrom. See Unaudited Pro Forma
Combined Balance Sheet and the notes thereto.
7
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing shares of Common Stock
offered hereby. This Prospectus contains forward-looking statements that involve
risks and uncertainties. Actual results could differ from those discussed in the
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in this Prospectus.
Absence of Combined Operating History. OrthAlliance was founded in October
1996 and has conducted no operations and generated no revenues to date. As a
result of the Merger, OrthAlliance succeeds to the rights of Premier and USOC
under agreements to acquire by transfer pursuant to SAB 48 certain operating
assets of and enter into long-term management services agreements with the
Founding Practices. The Founding Practices have been operating as separate,
independent entities and there can be no assurance that management will be able
to operate the Company successfully, manage the Founding Practices' operations,
achieve any cost savings as a result of the Transfers or institute the necessary
systems and procedures to manage the Company on a profitable basis. The combined
historical financial results of the Founding Practices cover periods when the
Founding Practices were not under common control or management and, therefore,
may not be indicative of the Company's future financial or operating results.
The Company may experience delays, complications and expenses in implementing,
integrating and operating such systems, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the management group has been assembled recently and
there can be no assurance that such persons will be able to effectively oversee
the implementation of the Company's operating, growth, acquisition and business
strategies. The inability of the Company to successfully integrate or operate
the Founding Practices could have a material adverse effect on the Company's
business, financial condition and results of operations and make it unlikely
that the Company's acquisition program will be successful. The Transfers include
the assumption of certain liabilities, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See Unaudited Pro Forma Combined Balance Sheet and the notes thereto, "Certain
Transactions," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Management."
Dependence on Allied Orthodontists. The Company receives fees for services
provided to Allied Practices under management services agreements, but does not
employ orthodontists or control or own the practices of its Allied
Orthodontists. The Company's revenue is dependent on revenue generated by the
Allied Practices, which in turn is largely dependent on the efforts of the
Allied Orthodontists and, therefore, the performance of Allied Orthodontists is
essential to the Company's success. The long-term management services agreements
with Allied Practices have 20 year terms, subject to prior termination by either
party for, among other things, a material default by the other party or a change
of control (as defined therein) applicable to the Company. Any material loss of
revenue by the Company's Allied Orthodontists or termination of such long-term
management services agreements could have a material adverse effect on the
Company's business, financial condition and results of operations. If an Allied
Practice lacks sufficient funds to pay its operating expenses, the Company will
be required to advance funds to pay such expenses. Advances will be in the form
of a loan from the Company to the Allied Practice. Funding for such loans (if
necessary) will be from the Company's working capital or credit facility, which
the Company anticipates it will obtain following the Offering. The Company may
not have working capital or available credit to fund such advances which would
have a material adverse effect on the operations of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Agreements with Allied Practices and
Allied Orthodontists."
Risks Related to Additional Affiliations and Growth Strategy. One of the
Company's primary business strategies is to increase revenue and expand the
markets it serves beyond the Founding Practices by acquiring certain operating
assets of and entering into long-term management services agreements with
additional orthodontic practices. Competition for such affiliations has
increased significantly in recent years and, as a result, there may be fewer
candidates available for affiliation with the Company. There can be no assurance
that the Company will be able to identify additional practices or contract with
such practices on favorable terms. Further, such arrangements involve a number
of risks, including diversion of management's attention, dependence on
retaining, hiring and training key personnel, and risks associated with the
assumption of certain contingent legal
8
<PAGE> 10
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the Founding Practices or other Allied Practices
will achieve anticipated revenues and earnings. To the extent that the Company
is unable to enter into affiliations with additional orthodontic practices, its
ability to expand its operations and increase its revenues to the degree desired
would be reduced significantly and would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Operating Strategy" and " -- Growth Strategy."
Risks Related to the Company's Affiliation Strategy. The Company intends
to finance future affiliations with cash, the issuance of shares of Common Stock
or the issuance of indebtedness as consideration. In the event that the Common
Stock does not maintain a sufficient market value, or potential acquisition
candidates are unwilling to accept Common Stock as partial consideration for
their practices, the Company may be required to use its cash resources, if
available, to initiate and maintain its acquisition program. If the Company
lacks sufficient cash resources to pursue acquisitions, its growth could be
limited unless it is able to obtain additional capital through debt or equity
financing. There can be no assurance that the Company will be able to obtain
such financing if and when it is needed or that, if available, such financing
can be obtained on favorable terms. The inability to obtain such financing could
have a material adverse effect on the Company's business, financial condition
and results of operations. Furthermore, issuing shares of Common Stock as
consideration for (or in order to provide financing for) future acquisitions
could result in significant dilution to existing stockholders. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Growth
Strategy."
Risks Related to the Company's Ability to Continue Internal
Growth. Certain of the Founding Practices have experienced significant growth
in the past, principally through growth of operations of existing orthodontic
offices and the opening of new offices. There can be no assurance that the
Company will be able to expand its market presence in its current locations or
successfully enter other markets by providing financial resources to the Allied
Practices required for opening new orthodontic offices. Such offices may incur
substantial costs, delays or other operational or financial problems. The
ability of the Company to continue its growth will depend on a number of
factors, including the availability of working capital to support such growth,
existing and emerging competition and the Company's ability to maintain
profitability while facing pricing pressures and rising overhead costs. The
Company must also manage costs in a changing regulatory environment, adapt its
infrastructure and systems to accommodate growth, and recruit and train
additional qualified personnel. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Operating Strategy" and " -- Growth Strategy."
Risks Related to Changes in Government Regulation. The orthodontic
industry and orthodontic practices are regulated extensively at the state and
federal levels. The Company will not control the practice of orthodontics by its
Allied Orthodontists as required by certain regulatory requirements directly
applicable to the orthodontists and their practices. The laws of many states
prohibit non-orthodontic entities (such as OrthAlliance) from practicing
orthodontics, owning all or certain assets of an orthodontic practice, employing
orthodontists or controlling the content of an orthodontist's advertisements.
The laws of many states also prohibit orthodontists from paying any portion of
fees received for orthodontic services in consideration for the referral of a
patient. In addition, many states impose limits on the tasks that may be
delegated by an orthodontist to other staff members. There can be no assurance
that any review of the Company's business relationships by regulatory
authorities or the courts will not result in determinations that could adversely
affect the operations of the Company or that the regulatory environment will not
change to restrict the Company's existing or future operations. These laws and
their interpretations vary from state to state and are enforced by regulatory
authorities with broad discretion. There can be no assurance that the legality
of the Company's long-term management services agreements will not be
successfully challenged or that enforceability of the provisions thereof will
not be limited. See "Business -- Agreements with Allied Practices and Allied
Orthodontists." The laws and regulations of certain states in which the Company
may seek to expand may require the Company to change the form of relationships
entered into with orthodontists in a manner which may restrict the Company's
operations in those states or may prevent the Company from acquiring the assets
of or managing or providing consulting services to orthodontic practices in
those states. In addition, there can be no assurance that the laws and
regulations of states in which the Founding
9
<PAGE> 11
Practices presently maintain operations will not change or be interpreted in the
future to either restrict or adversely affect the Company's relationships with
Allied Orthodontists in those states. See "Business -- Government Regulation."
Risks Related to Future Health Care Reform. The United States Congress has
considered various health care reform proposals, including comprehensive
revisions to the current health care system. It is uncertain what legislative
proposals will be adopted in the future or what actions federal or state
legislatures or third-party payors may take in anticipation of or in response to
any health care reform proposals or legislation. Health care reform legislation
adopted by Congress could have a material adverse effect on the operations of
the Company, and changes in the health care industry, such as the growth of
managed care organizations and provider networks, may result in lower payment
levels for the services of the Allied Orthodontists.
Dependence on Enforceability of Operative Agreements. To effect the
consummation of the Transfers, the Company, as successor to Premier and USOC,
required the Founding Practices and certain of their orthodontists to execute
three agreements (collectively, the "Operative Agreements"): (i) a purchase and
sale agreement, stock purchase and sale agreement or agreement and plan of
reorganization by and between the Founding Practice and OrthAlliance; (ii) a
long-term management services agreement by and between the Founding Practice and
OrthAlliance; and (iii) employment agreements by and between the Founding
Practice and certain of its orthodontists. The consummation of the Transfers and
the subsequent viability of the Company are dependent on the initial and
continuing enforceability of the Operative Agreements. While OrthAlliance has
attempted to structure the Operative Agreements in accordance with applicable
law, there can be no assurance that the enforceability of certain non-compete
and other provisions will not be successfully challenged. Further, because each
of the employment agreements is between the Allied Orthodontist and the Allied
Practice, there can be no assurance that the parties thereto will not terminate
or amend the terms and conditions of such employment agreements. See
"Business -- Agreements with Allied Practices and Allied Orthodontists."
Dependence on Key Personnel. The success of the Company is dependent upon
the continued services of the Company's senior management, including Sam
Westover, Chief Executive Officer, Robert S. Chilton, Chief Financial Officer
and P. Craig Hethcox, Chief Operating Officer. The loss of the services of
Messrs. Westover, Chilton or Hethcox or other Company senior management could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management."
Risks Related to Competition. The business of providing orthodontic
services is highly competitive in each market in which the Company operates.
Each of the Company's Allied Orthodontists faces competition from other
orthodontists or general dentists in the communities served, some of whom have
more established practices in the market. The Company is aware of several other
companies currently developing, consolidating and managing orthodontic practices
throughout much of the United States, and the Company may encounter substantial
competition from those entities, as well as new market entrants. Other
competitors involved in managing multiple practices may have greater marketing,
financial and other resources and more established operations than the Company.
The Company expects that the level of competition with regional or national
management concerns will remain high in the future, which could limit the
Company's ability to maintain or increase its market share or maintain or
increase gross margins, either of which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."
Liability Risks Associated with Providing Orthodontic Services. Each of
the Allied Orthodontists provides orthodontic services to the public and may be
exposed to the risk of professional liability and other claims. Claims relating
to orthodontic treatment, temporomandibular joint syndrome-related claims and
claims for failure to diagnose periodontal disease, if successful, could result
in substantial damage awards to the claimants which may exceed the limits of any
applicable insurance coverage of the Allied Practice and, potentially, the
Company as an affiliate of the Allied Practice. The Company does not engage in
the practice of orthodontics, and, as a result, cannot purchase malpractice
insurance. Each of the Allied Practices or the Company on its behalf will be
required to maintain certain levels of general liability and malpractice
insurance. The Company will not control the practice of orthodontics by its
Allied Orthodontists or the compliance with regulatory and other requirements
directly applicable to the Allied Orthodontists and the Allied Practices.
Although the Company maintains liability insurance for itself (with limits and
retention amounts to be negotiated), and intends to be named as an additional
10
<PAGE> 12
insured party on the liability insurance policies of the Allied Orthodontists
(where permitted by insurers and applicable state law), successful malpractice
claims against the Company or the Allied Orthodontists could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that claims not covered by
the Company's insurance (e.g., claims for punitive damages) will not arise. See
"Business -- Litigation and Insurance." Claims against the Company, the Allied
Practices and/or the Allied Orthodontists, regardless of their merit or eventual
outcome, may also have a material adverse effect on the Company's ability to
attract patients to Allied Practices or expand its business. Further, because
insurance policies must be renewed annually, there can be no assurance that the
Company, the Allied Practices and/or the Allied Orthodontists, will be able to
obtain liability insurance coverage in the future on acceptable terms, if at
all.
Substantial Proceeds of IPO Payable to Founding Practices and
Affiliates. Approximately $13.8 million of the net proceeds of the IPO will be
used to pay the cash portion of the purchase price of the purchase and sale
agreements and agreements and plans of reorganization in the Transfers.
Approximately $900,000 of the net proceeds of the IPO will be used to pay
accrued consulting fees to certain affiliates of the Company. In addition,
approximately $3.0 million of the net proceeds from the IPO will be used to
repay indebtedness assumed by the Company in connection with the Merger and the
Transfers. See "The Company" and "Certain Transactions."
Control by Existing Management and Stockholders. Following the completion
of the Transfers, the Merger and the IPO, the Allied Orthodontists, the
executive officers and directors of the Company and entities affiliated with
such persons will beneficially own approximately 69.0% of the then outstanding
shares of Common Stock and Class B Common Stock and will exercise control over
the Company's affairs. These stockholders acting together will be able to elect
the Board of Directors of the Company and approve or disapprove any matter
submitted to a vote of stockholders, including amendments to the Company's
Certificate of Incorporation (the "Certificate"), mergers, share exchanges, the
sale of all or substantially all of the Company's assets, going private
transactions or other fundamental corporate transactions. See "Principal
Stockholders" and "Description of Capital Stock."
In addition, certain Allied Orthodontists, officers, directors and existing
stockholders of the Company will own an aggregate of 250,000 shares of the Class
B Common Stock, each such share is entitled to one vote per share and is
entitled to vote with the Common Stock on all matters submitted to a vote of the
Company's stockholders. The Class B Common Stock will automatically convert into
shares of Common Stock at a ratio of eight shares of Common Stock for each share
of Class B Common Stock upon the attainment of the Conversion Prices. Attainment
of each of the Conversion Prices will result in conversion of the Class B Common
Stock into a maximum of 2,000,000 shares of Common Stock, further increasing the
holders' of such shares control over the Company's affairs. In the event all of
the Class B Common Stock is converted into the maximum number of shares of
Common Stock possible, through the achievement of all of the Conversion Prices
on or before the Final Conversion Date, the Allied Orthodontists, the officers
and directors of the Company and entities affiliated with such persons would
beneficially own approximately 69.7% of the then outstanding shares of Common
Stock and Class B Common Stock (assuming no other issuances of capital stock).
If the Conversion Prices are not achieved prior to the Final Conversion Date,
all outstanding shares of Class B Common Stock will convert to shares of Common
Stock at a ratio of one share for one share on such date. See "Description of
Capital Stock -- Common Stock and Class B Common Stock."
Shares Eligible for Future Sale. All of the shares of Common Stock being
sold in this Offering and the IPO will be freely tradeable unless acquired by
affiliates of the Company. The market price of the Common Stock could be
adversely affected by the sale of substantial amounts of Common Stock of the
Company in the public market following the IPO. Upon the closing of the IPO, the
owners of the Founding Practices will receive, in the aggregate, 5,882,985
shares of Common Stock as a portion of the consideration for the affiliation of
their orthodontic practices with the Company. The 5,882,985 shares of Common
Stock received by the owners of the Founding Practices are not registered;
however, holders of such shares have certain incidental registration rights
pursuant to the purchase and sale agreements and agreements and plans of
reorganization between OrthAlliance and the Founding Practices, whereby the
Company must use its reasonable efforts to register such shares under certain
circumstances during the twenty-four months following the closing of the
Transfers. See "Description of Capital Stock -- Registration Rights." Certain
other stockholders of OrthAlliance will hold, in the aggregate, an
11
<PAGE> 13
additional 1,750,000 shares of Common Stock and 250,000 shares of Class B Common
Stock. See "Certain Transactions." None of the 1,750,000 shares of Common Stock
were acquired in transactions registered under the Securities Act and,
accordingly, such shares may not be sold except in transactions registered under
the Securities Act or pursuant to an exemption from registration thereunder. The
250,000 shares of Class B Common Stock are not transferable, except to the
holder's spouse, parents, siblings, lineal descendants, a trust for the benefit
of any such person or as determined by will or the laws of descent.
The Company, all of the owners of the Founding Practices, and the executive
officers, directors and 5% or greater shareholders of the Company will be
restricted from offering or selling shares of Common Stock received in
connection with the Merger and the Transfers for a period of 365 days (the
"Lock-up Period") after the date of the prospectus relating to the IPO without
the prior written consent of J.C. Bradford & Co. and Oppenheimer & Co., Inc., as
representatives of the underwriters (the "Representatives"), except in
connection with acquisitions or the exercise of warrants or options granted
under the Company's stock option plans. After the Lock-up Period, all of such
shares may be sold in accordance with Rule 144 promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), subject to the volume, holding
period and other limitations of Rule 144.
The shares issued from time to time in this Offering generally will be
freely tradable upon issuance to persons not deemed to be affiliates of the
Company, unless the Company contractually restricts the sale or other transfer
of such shares. Initially, the Company will issue such shares subject to a
Lock-up Period of up to 180 days from the date of the prospectus relating to the
IPO.
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
IPO, there was no public market for the Common Stock. The Common Stock has been
approved for quotation on the Nasdaq National Market, however, there can be no
assurance that, following the IPO, a regular trading market for the Common Stock
will develop or be sustained. The initial public offering price in the IPO was
determined by negotiation among the Company and the Representatives and may bear
no relationship to the market price of the Common Stock after the IPO. The
market price of the Common Stock could be subject to significant fluctuations in
response to variations in quarterly operating results and other factors. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. Factors such as actual or anticipated
operating results, growth rates, changes in estimates by analysts, market
conditions in the industry, announcements by competitors, regulatory actions and
general economic conditions will vary over time. As a result of the foregoing,
the Company's operating results and prospects periodically may be below the
expectations of public market analysts and investors. Any such event would
likely result in a material adverse effect on the price of the Common Stock.
Absence of Dividends. Except for the payment of $13.8 million cash
consideration to be paid to the Founding Practices in connection with the
Transfers, which is recorded as a cash dividend, the Company has never paid any
cash dividends and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. See "Dividend Policy."
Anti-takeover Effect of Certain Provisions. Certain provisions of
OrthAlliance's Certificate, Bylaws and the Delaware General Corporation Law
("DGCL") could delay or impede the removal of incumbent directors and could make
a merger, tender offer or proxy contest involving the Company more difficult, or
could discourage a third party from attempting to acquire control of the
Company, even if such events would benefit the interests of the stockholders. In
particular, OrthAlliance's Certificate provides for a "staggered" Board of
Directors in three classes, which could have the effect of delaying a change in
control of the Company. In addition, although OrthAlliance has no current plans
to issue any preferred stock, the Certificate authorizes the Board of Directors
to issue "blank check" preferred stock of the Company, in one or more series,
without stockholder approval of the issuance and upon such terms and conditions,
and having such rights, privileges and preferences, as the Board of Directors
may determine. See "Description of Capital Stock -- Preferred Stock" and
"Certain Provisions of the Certificate, Bylaws and Delaware Law." Certain of the
Company's senior management personnel have entered into employment agreements
with the Company which contain "change in control" provisions. The "change in
control" provisions may hinder, delay, deter or prevent a tender offer, proxy
contest or other attempted takeover because covered employees terminated within
12 months of a change in control would be paid an amount equal to three times
(i) their existing annual base compensation and (ii) the
12
<PAGE> 14
maximum possible cash bonus. In addition, the Company must pay any accrued
salary, benefits or reimbursements to such employee. See
"Management -- Employment Agreements." The Service Agreements entered into with
the Allied Orthodontists provide that said agreements may be terminated by the
Founding Practices pursuant to a change of control, defined therein, which does
not include transactions approved by the Company's Board of Directors.
OrthAlliance is also subject to Section 203 of the DGCL which prohibits a
publicly held Delaware corporation from engaging in a "business combination" (as
defined in Section 203 of the DGCL) with an "interested stockholder" (defined in
Section 203 of the DGCL, generally, as a person owning 15% or more of the
Company's outstanding voting stock) for a period of three years after the date
of the transaction in which such person became an interested stockholder, unless
certain conditions are met.
13
<PAGE> 15
THE COMPANY
OrthAlliance was organized to create a national provider of practice
management services to orthodontic practices in the United States. Premier and
USOC, predecessors to OrthAlliance, were formed in 1996 independently of each
other to acquire certain operating assets of and to enter into long-term
management services agreements with orthodontic practices. The management of
Premier and USOC determined to combine the two companies to form OrthAlliance.
Prior to the closing of the IPO, Premier and USOC will merge with and into
OrthAlliance (previously defined as the Merger), and pursuant thereto the
Company succeeds to the rights of Premier and USOC under the agreements with the
Founding Practices and will acquire all tangible and intangible assets and
liabilities of Premier and USOC. See "Certain Transactions" and Note 1 to Notes
to the Financial Statements of the Company.
Simultaneously with and as a condition to the closing of the IPO,
OrthAlliance will acquire, by transfer pursuant to SAB 48, certain operating
assets or the stock of entities holding certain operating assets of, the 55
separate Founding Practices in exchange for cash and shares of Common Stock and
will enter into long-term management or consulting services agreements with the
Founding Practices (previously defined as the Transfers). See
"Business -- Agreements with Allied Practices and Allied Orthodontists." In
Transfers requiring stock acquisitions, the Company generally will acquire the
stock of the entity (the "Original Entity") through which the applicable
Founding Practice previously operated and generated revenues. Before the
Company's acquisition of the Original Entity, the stockholder(s) of the Original
Entity will form a new entity (the "New Entity") through which the Founding
Practice will provide orthodontic services and which will hold all assets that
the Company is unable to own pursuant to applicable state law or which the
Company does not desire to acquire from the Allied Practice. At the time of
transfer of the stock of the Original Entity to OrthAlliance, the Original
Entity will hold the operating assets of the Original Entity that the Company is
permitted to own.
The aggregate consideration paid by the Company to the Founding Practices
is approximately $84.4 million, composed of 5,882,985 shares of Common Stock and
approximately $13.8 million in cash, all of which is payable at the closing of
the Transfers. Cash proceeds from the IPO will be used to pay the cash portion
of the consideration. See "Certain Transactions," "Business -- Agreements with
Allied Practices and Allied Orthodontists," and the Unaudited Pro Forma Combined
Balance Sheet and the notes thereto.
The Company plans to use the shares of Common Stock from this Offering to
make Future Transfers, including four pending transfers. The aggregate
consideration to be paid by the Company with respect to Future Transfers will
generally be payable up to 20% in cash and the remainder with shares of Common
Stock issued in this Offering. Shares of Common Stock issued in connection with
Future Transfers will be valued at prices reasonably related to market price for
the Common Stock prevailing either at the time an acquisition agreement is
executed or at the time a Future Transfer is consummated.
The Company maintains its principal executive office at 23848 Hawthorne
Boulevard, Suite 200, Torrance, California 90505, and its telephone number is
(310) 791-5656.
DIVIDEND POLICY
Except for the payment of $13.8 million cash consideration to be paid to
the Founding Practices in connection with the Transfers, which is recorded as a
cash dividend, the Company has never declared or paid dividends on its Common
Stock or Class B Common Stock. Prior to the Transfers, the Founding Practices,
some of which are sole proprietorships, C corporations or S corporations, made
distributions of earnings to their owners and stockholders, as applicable. 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. The
Company may borrow funds under credit agreements which may limit the ability of
the Company to pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
the total capitalization (i) of the Company as of June 30, 1997, (ii) on a pro
forma basis to reflect the Merger and Transfers and (iii) on a pro forma as
adjusted basis to give effect to the Merger and Transfers, the sale of the
2,600,000 shares of Common Stock offered in the IPO and the application of the
net proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the OrthAlliance financial statements and notes thereto and the
Unaudited Pro Forma Combined Balance Sheet and the notes thereto included in
this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA(1) AS ADJUSTED(1)(2)
---------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt........................ -- $ -- $ --
====== ======== ========
Long-term debt, less current portion..................... -- 3,012 --
------ -------- --------
Stockholders' equity:
Preferred Stock $.001 par value; 20,000,000 shares
authorized(3); no shares issued and outstanding,
pro forma or as adjusted.......................... -- -- --
Class A Common Stock, $.001 par value; 70,000,000
shares authorized, one share issued and
outstanding at March 31, 1997(3); 7,632,985 issued
and outstanding pro forma; 10,232,985 issued and
outstanding as adjusted(4)........................ -- 8 11
Class B Common Stock, $.001 par value; 250,000
shares authorized(3), no shares issued and
outstanding at March 31, 1997; 250,000 issued and
outstanding pro forma and as adjusted(4).......... -- -- --
Additional paid-in capital.......................... 3,190 10,877 38,190
Accumulated deficit(5).............................. (4,090) (20,324) (20,324)
------ -------- --------
Total Stockholders' equity..................... (900) (9,439) 17,877
------ -------- --------
Total capitalization...................... (900) $ (6,427) $ 17,877
====== ======== ========
</TABLE>
- ---------------
(1) See Unaudited Pro Forma Combined Balance Sheet and the notes thereto
included elsewhere in this Prospectus for a discussion of the assumptions
made and adjustments applied in preparation of this information.
(2) Gives effect to the sale of 2.6 million shares of Common Stock offered by
the Company in the IPO and the application of the estimated net proceeds
therefrom.
(3) Reflects an amendment to the Company's Certificate filed subsequent to June
30, 1997 to increase the authorized capital stock and to designate classes
of common stock.
(4) Does not include 1,193,622 shares of Common Stock issuable upon the exercise
of outstanding options for the purchase of Common Stock pursuant to the
Company's stock plans or issuable upon the exercise of warrants to purchase
Common Stock. See "Management -- Stock Plans" and "Description of Capital
Stock -- Warrants."
(5) Pro Forma and Pro Forma As Adjusted includes the accrual for a cash dividend
of $13.8 million representing payments to certain of the Founding Practices.
15
<PAGE> 17
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following information is derived from the audited financial statements
of OrthAlliance included elsewhere in this Prospectus. Except as indicated, this
information does not reflect the effect of the Merger, the Transfers, the IPO or
the Offering. For certain information concerning the Transfers of the Founding
Practices, see Note 5 of Notes to Financial Statements of the Company.
<TABLE>
<CAPTION>
THE PERIOD
FROM
OCTOBER 21, SIX MONTHS
1996 ENDED
TO DECEMBER 31, JUNE 30,
1996 1997
--------------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenue................................................. $ -- $ --
---------- ----------
Total expenses(2)........................................... -- 4,090
Operating loss.............................................. -- 4,090
---------- ----------
Net loss.......................................... $ -- $ 4,090
========== ==========
Net loss per share................................ $ -- $ .39
========== ==========
Number of shares used in net loss per share calculation..... -- 10,533
========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
HISTORICAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $10,229
Working capital............................................. (900) 14,815
Total assets................................................ -- 21,037
Long-term debt, less current portion........................ -- --
Stockholders' equity........................................ (900) 17,877
</TABLE>
- ---------------
(1) OrthAlliance has conducted no significant operations to date and will not
conduct significant operations until the Merger, the Transfers and the IPO
are completed. The Company was incorporated on October 21, 1996.
(2) Represents compensation expense related to the issuance of warrants and to
consulting services. See Note 1 and Note 5 of Notes to Financial Statements
of the Company.
(3) As adjusted gives effect to the Merger, the Transfers and the sale of 2.6
million shares of Common Stock offered by the Company in the IPO and the
application of the estimated net proceeds therefrom. See Unaudited Pro Forma
Combined Balance Sheet and the notes thereto.
16
<PAGE> 18
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following information is derived from the audited and unaudited
financial statements of USOC, a predecessor of OrthAlliance, included elsewhere
in this Prospectus. Except as indicated, this information does not reflect the
effect of the Merger, the Transfers, the IPO or the Offering.
<TABLE>
<CAPTION>
THE PERIOD
FROM INCEPTION
(FEBRUARY 7,
1996) TO SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
USOC STATEMENT OF OPERATIONS DATA:
Net revenue............................................... $ 0 $ 0
Total expenses............................................ 3,132 972
Operating loss............................................ 3,132 972
------- -------
Net loss........................................ $ 3,132 $ 964
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
USOC BALANCE SHEET DATA:
Cash and Cash Equivalents................................. $ 60 $ 20
Working capital........................................... (1,059) (412)
Total assets.............................................. 89 260
Long-term debt, less current portion...................... 0 0
Stockholders' (deficit) equity............................ (1,032) (384)
</TABLE>
The following information is derived from the audited and unaudited
financial statements of Premier, a predecessor of OrthAlliance, included
elsewhere in this Prospectus. Except as indicated, this information does not
reflect the effect of the Merger, Transfers, the IPO or the Offering.
<TABLE>
<CAPTION>
THE PERIOD
FROM INCEPTION
(NOVEMBER 26,
1996) TO SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
PREMIER STATEMENT OF OPERATIONS DATA:
Net revenue............................................... $ 0 $ 0
Total expenses............................................ 255 503
Operating loss............................................ 255 503
------- -------
Net loss........................................ $ 255 $ 490
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
PREMIER BALANCE SHEET DATA:
Cash and Cash Equivalents................................. $ 0 $ 564
Working capital........................................... (260) 230
Total assets.............................................. 5 599
Long-term debt, less current portion...................... 0 1,010
Stockholders' (deficit) equity............................ (255) (745)
</TABLE>
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions, and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
as well as those discussed elsewhere in this Prospectus. The historical results
set forth in this discussion and analysis are not indicative of trends with
respect to any actual or projected future financial performance of the Company.
The following should be read in conjunction with the financial statements and
related notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
OrthAlliance has conducted no significant operations to date but will
acquire as a result of the Transfers certain operating assets and, in some
cases, liabilities of the Founding Practices. In addition, OrthAlliance succeeds
to the rights of USOC and Premier under either a service agreement ("Service
Agreement") or a consulting and business services agreement ("Consulting
Agreement") with each of the Founding Practices (the Service Agreements and
Consulting Agreements are referred to herein collectively as "Management
Agreements"). Under the Service Agreements, the Company will provide practice
management services to the Founding Practices in exchange for certain management
fees. Under the Consulting Agreements, which allow the Company and the Founding
Practice to comply with certain state law restrictions on practice management,
the Company will provide consulting services in exchange for similar fees.
Under the Management Agreements, the Company will act as manager and
administrator of each Founding Practice and will assume substantially all
operating expenses to third parties of such Founding Practice. In exchange for
assuming these expenses and providing management services, the Company will
record revenues in amounts equal to the assumed expenses plus a management fee,
as described below. In general, the Management Agreements provide for the
payment of fees to the Company based on a negotiated percentage of the "Adjusted
Patient Revenue" of the Founding Practices. Adjusted Patient Revenue is net
patient revenue, as determined under generally accepted accounting principles,
including adjustments for contractual allowances and other discounts, plus an
adjustment for uncollectible accounts. Patient revenue is recognized as
orthodontic services are performed, with approximately 20% being recognized at
the time of initial treatment. The balance of the contract revenue is realized
evenly over the remaining treatment period. The 20% estimated revenue at the
initial treatment date is based on the estimated costs incurred by the practice
at that time as compared to the total costs of providing the contracted services
and is consistent with industry standards. The percentage includes the estimated
costs of diagnosis and treatment plan development, initial treatment by
orthodontic personnel, orthodontic supplies, and associated administrative
services.
The management fee is paid monthly to the Company by each Founding Practice
based upon the practice's Adjusted Patient Revenue calculated on the accrual
basis using the revenue recognition criteria noted above. There are three fee
structures by which the management fee may be calculated under the Management
Agreements:
(i) a designated percentage of Adjusted Patient Revenue, ranging from
14% to 17%, subject to an annual adjustment based upon improvements in the
Founding Practice's operating margin in the most recent fiscal year as
compared with the immediately preceding fiscal year. No annual adjustment
shall be made which would result in reducing the designated percentage
applicable during the first year of the Management Agreement. Operating
margin is defined as the percentage determined by dividing operating profit
by Adjusted Patient Revenue. Operating profit is equal to Adjusted Patient
Revenue less operating expenses, excluding the management fee and such
expenses associated with the Founding Practices which the Company is
prohibited from incurring, primarily consisting of orthodontic
compensation. The average designated percentage is 16.9% for those Founding
Practices under this arrangement.
(ii) a designated percentage ranging from 13.5% to 17% of Adjusted
Patient Revenue with a potential annual adjustment of 25% of the increase
in operating margin (as defined in subparagraph (i) above) in a
18
<PAGE> 20
fiscal year as compared to the preceding fiscal year multiplied by the
Adjusted Patient Revenue for the current fiscal year. The supplemental fee
for improvement in operating margin, if applicable, shall be paid in a lump
sum payment upon final determination of the Founding Practice's operating
margin for the fiscal year. The average designated percentage is 16.3% for
the Founding Practices under this arrangement.
(iii) a fixed dollar fee with annual fixed dollar increases for each
year of the Management Agreement.
Pursuant to the Management Agreements, the Company incurs the expenses
necessary to manage and administer each Founding Practice and such expenses are
paid from funds generated by such Founding Practice. The Company generally is
required to employ the personnel for operation of the Founding Practice (except
the Allied Orthodontist and certain clinical personnel), establish appropriate
business systems, perform payroll and accounting functions, provide billing and
collection services, purchase and maintain inventory, provide certain equipment
and furnishings, arrange legal services unrelated to malpractice litigation,
formulate a marketing plan, manage and organize the Founding Practices' records
and advise each Founding Practice regarding practice expansion. In addition, the
Company is required to pay the operating expenses of each Founding Practice,
except for the salaries of the Allied Orthodontists and, in certain states
according to applicable law, other professional staff. The Company will also
incur personnel and administrative expenses in connection with maintaining
corporate offices, from which the Company will provide management,
administrative, marketing, development and acquisition services. The Management
Agreements have an initial term of 20 years, subject to prior termination by
either party in the event the other party (i) becomes subject to bankruptcy
proceedings or (ii) materially breaches the Management Agreement and such party
fails to cure the breach within 90 days. In addition, the Allied Practices may
terminate the Management Agreements upon the occurrence of a change in control
(as defined therein).
Management fees are due in arrears on the date each Founding Practice's
monthly financial statements are completed. Within 45 days following the end of
each calendar quarter, the Company will prepare quarterly financial statements
for each Founding Practice. In the event of a quarterly adjustment to the
Founding Practice's Adjusted Patient Revenue, amounts owing to a Founding
Practice (as a result of such adjustment) will be remitted by the Company to the
Founding Practice. Any amounts owing to the Company by a Founding Practice will
be deemed an operating expense of the Founding Practice to be paid to the
Company from the Adjusted Patient Revenue of the Founding Practice.
Each Management Agreement provides that the Company advance funds, if
required, to the Founding Practice to pay operating expenses of such practice,
including Founding Practice operating expenses incurred by the Company and
certain expenses required to be paid by the Founding Practice. Advances will be
evidenced by a note from the Founding Practice and repaid upon mutually agreed
upon terms and conditions generally to include interest at the prime rate
published in The Wall Street Journal plus one percent. Advances are deemed
operating expenses of a Founding Practice to be paid to the Company from the
Founding Practice's Adjusted Patient Revenue. The Company will fund advances
from working capital or borrowings pursuant to a credit facility which the
Company anticipates it will establish following the closing of the IPO. See
"Liquidity and Capital Resources."
The Company will enter into Management Agreements on generally similar
terms in connection with the Future Transfers. The Company expects that the
terms of such Management Agreements will be determined through negotiations with
the owners of additional orthodontic practices.
In accordance with SAB 48 published by the Commission, the acquisition of
the assets and assumption of certain liabilities of all of the Founding
Practices pursuant to the Transfers are accounted for by the Company at the
transferors' historical cost basis, with the shares of Common Stock to be issued
in those transactions being valued at the historical cost of the nonmonetary
assets acquired net of liabilities assumed. The cash consideration will be
reflected as a dividend by the Company to the owners of the Founding Practices.
The Future Transfers will generally result in subsequent annual noncash
amortization charges for intangible assets in the Company's statements of
operations.
The Company intends to implement a growth strategy focused on (i)
affiliating with additional orthodontic practices that fit the OrthAlliance
model of a high quality practice with strong financial performance;
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(ii) expanding Allied Practices by providing capital, support and consultation
for satellite office expansion; (iii) assisting the Allied Practices with their
internal growth by increasing gross revenues through increased patient volume;
and (iv) enhancing profitability through operational efficiencies.
RESULTS OF OPERATIONS
OrthAlliance has conducted no significant operations to date and will not
conduct significant operations until the Transfers, the Merger and the IPO are
completed. From inception through June 30, 1997, USOC and Premier incurred
development costs of $4.4 million and $745,200, respectively. OrthAlliance did
not incur development costs during this period. See the Company's Financial
Statements and Unaudited Pro Forma Combined Balance Sheet and notes thereto.
LIQUIDITY AND CAPITAL RESOURCES
If the Transfers had occurred on June 30, 1997, the Company would have had
a pro forma working capital deficit of approximately $9.4 million, including the
accrual of $13.8 million for cash dividends payable to the Founding Practices.
The Company anticipates the primary uses of capital will include
affiliation with orthodontic practices, certain costs related to the development
of satellite offices and funding working capital needs of the Company and the
Allied Practices. The Company estimates that it will incur capital expenditures
of approximately $50,000 for the remainder of fiscal 1997, which do not include
amounts that the Company may provide to an Allied Practice to fund certain of
the development costs of a satellite office. The Company intends to provide or
arrange for capital for practice expansion, market research, site selection,
office design and marketing support for satellite office development. Total
development costs will vary by geographic location, but are currently
anticipated to be approximately $250,000 per office. In addition as described
above, the Company, pursuant to the Management Agreements, is required to
advance funds, if necessary, to such Founding Practice for the purpose of paying
such expenses. The advances will be funded from the Company's working capital or
credit facility discussed below. As part of its growth strategy, the Company
intends to enter into affiliations with additional orthodontic practices that
will involve the payment of cash and issuance of Common Stock.
Management believes that the proceeds of the IPO combined with the
Company's anticipated cash flow from operations will be sufficient to fund the
planned capital needs and ongoing operations of the Company for a period of 18
months following the closing of the IPO. Additional capital may be required by
the Company's acquisition program. The Company is currently negotiating with
various lenders to obtain a revolving credit facility which if obtained will be
available to fund additional working capital needs (if any) and possible future
acquisitions. There can be no assurance that the Company will be able to obtain
financing on favorable terms. In addition, the Company plans to use the shares
of Common Stock registered pursuant to this Offering, in combination with the
Company's cash resources, to support the Company's planned acquisition program.
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BUSINESS
GENERAL
OrthAlliance was organized to create a national provider of practice
management services to orthodontic practices in the United States. The Company
will manage the business aspects of the Allied Practices (subject to applicable
state law), thereby allowing Allied Orthodontists to focus on delivering
cost-effective, high quality patient care, and will provide capital for the
development and growth of such practices. The Company will affiliate with Allied
Practices pursuant to long-term management services agreements and will generate
revenues by providing management, marketing and development services to Allied
Practices. The Company intends to aggressively expand its network of Allied
Practices by acquiring certain operating assets of and entering into long-term
management services agreements with additional orthodontic practices throughout
the United States.
The Founding Practices and Their Allied Orthodontists. The Company has
entered into definitive agreements, to be consummated simultaneously with the
closing of the IPO, to acquire (by transfer pursuant to SAB 48) certain
operating assets of or the stock of certain entities holding the assets of, and
enter into Management Agreements with, 55 Founding Practices, which include 82
orthodontists operating 147 offices located in 16 states. Management believes
that the Founding Practices are leading practices in their markets and the
Founding Practices were selected based upon a variety of factors, including
size, profitability, historical growth and reputation for high quality care,
among local consumers of orthodontic services and within the orthodontic
services industry. Some of the Founding Practices were referred to the Company
by certain Allied Orthodontists. Potential Founding Practices were subject to
peer review which evaluated practices on the quality of patient care and the use
of effective practice procedures. Management intends to capitalize on the
reputations and relationships of the Founding Practices and their Allied
Orthodontists to assist the Company in affiliating with additional orthodontic
practices.
Management believes that the Company's management, marketing, recruiting
and growth strategies, as applied to the Allied Practices, will maximize the
Company's revenues. Each Allied Orthodontist of the Founding Practices will
initially be a member of the Company's Board of Advisors, highlighting the
expertise of the Allied Orthodontists of the Founding Practices. The Board of
Advisors will advise management on a broad range of issues, including treatment,
risk management, quality assurance, credentialing, managed care, product
evaluation, professional resources and marketing. The members of the Board of
Advisors will also recommend professional standards for both treatment quality
and delivery of patient care, and provide a peer review process.
Services of the Company. Pursuant to the OrthAlliance model, the Company
provides or will provide fee-based management services to Allied Practices
thereby allowing Allied Orthodontists to concentrate on providing cost
effective, high quality patient care. The Company does not practice orthodontics
or dentistry, but generally acquires certain operating assets of an orthodontic
practice, employs the employees (except orthodontists, and where applicable law
requires, hygienists and dental assistants), and enters into Management
Agreements with the Allied Practices. Where state law allows and upon request by
an Allied Practice, the Company may lease equipment or office space to the
Allied Practices and employ orthodontic assistants for the Allied Practices.
Each Allied Practice, in its sole discretion, determines the fees to be charged
for services provided to patients based upon market conditions in the service
area and other factors deemed appropriate by the Allied Practice.
The Company will generate revenues by providing management services to the
Allied Practices, including billing and collections, cash management,
purchasing, inventory management, payroll processing, employee benefits
administration, advertising and marketing, financial reporting and analysis,
productivity reporting and analysis, training, associate orthodontist recruiting
and capital for satellite office development and acquisitions. Management
believes, based on its experience with the Founding Practices and data available
to it, that the Company's emphasis on high quality patient care and its
business, marketing, technological and practice-growth support systems will
appeal to orthodontists inclined to affiliate with the Company.
THE ORTHODONTIC INDUSTRY
Orthodontics, the art and science of correcting the misalignment of teeth,
historically has been one of the most profitable specialties in dentistry. The
field of orthodontics has evolved greatly since the turn of the century,
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<PAGE> 23
a process which management believes will continue. Orthodontic research and
education have aided the development of new materials and techniques of
orthodontic treatment, including the use of computers to help solve complex
cases. In 1994, orthodontists in the United States conducted examinations of
nearly 2.5 million potential new patients and initiated treatment for
approximately 1.5 million patients. The typical orthodontist initiated treatment
for approximately 170 patients in 1994 and maintained approximately 380 active
cases.
The primary target market for orthodontic treatment is children ages 8 to
18. In 1994, approximately 80%, or 1.2 million, of all patients treated were
children. The U.S. Census Bureau estimates that as of July 1, 1996, there were
approximately 37.6 million children and adolescents between the ages of 10 and
19. Management believes that as many as 50% of these children and adolescents
could benefit from orthodontic treatment, presenting an attractive opportunity
for the Company. In addition to the traditional juvenile market, the adult
market has been a rapidly growing market for orthodontic services. Management
believes the market for adults has grown rapidly over the last 15 years as a
result of several factors. Adults today are more conscious about their
appearance, which may be improved by orthodontic treatment they may not have
received as children. Moreover, many adults today are more willing to undergo
orthodontic treatment in light of the development of new orthodontic materials
and techniques that allow the orthodontist largely to conceal the bands and
brackets used during treatment because they match the color of the teeth. Based
on statistics obtained from the 1995 JCO Study, management believes that the
adult market for orthodontic services remains untapped, as the number of adults
who need or want orthodontic treatment substantially exceeds the number of
patients currently seeking treatment. In 1994, standard case fees averaged
approximately $3,500 for children and $3,800 for adults.
Currently, there are approximately 9,000 practicing orthodontists in the
United States, nearly all of whom have graduated from accredited graduate
programs of orthodontics. The industry is highly fragmented, with approximately
90% of the practicing orthodontists acting as sole practitioners and the balance
practicing in multiple-doctor practices (generally two orthodontists) or in
groups affiliated with competitors of the Company. The training and
qualification of an orthodontist is extremely rigorous. Generally, a dentist
must graduate in the top 10% of his or her class at an accredited graduate
school of dentistry, pass national and state board examinations, and complete an
accredited graduate orthodontic program to become an orthodontist. These
programs typically are structured as two- or three-year programs. Each year
about 200 new orthodontists graduate from accredited orthodontic programs.
OPERATING STRATEGY
Management believes that the Company's operating strategy will enable
Allied Practices to compete more effectively and realize significantly greater
profitability than other orthodontic practices, thereby providing an inducement
for additional orthodontists to affiliate with the Company. Key elements of the
Company's operating strategy include:
Emphasizing Quality Patient Care. Management believes that the services
and support it provides its Allied Orthodontists will positively impact the
level of patient care by increasing the Allied Orthodontists' time to
concentrate on patient care. Management believes that the primary hindrances to
consistent delivery of quality patient care are (i) the discrepancy in
qualifications among practicing orthodontists and (ii) the amount of time each
orthodontist spends on patient care. The qualifications of providers of
orthodontic services vary from general dentists who have taken weekend courses
in orthodontics to graduates of accredited three-year programs. Nearly all
Allied Orthodontists affiliated with the Founding Practices are graduates of
accredited orthodontic programs. In addition, the Company will establish
clinical care advisory committees consisting of Allied Orthodontists who will
meet periodically to formulate quality assurance programs, to perform peer
review studies, and to consult with each other on current treatments, techniques
and issues. Furthermore, recent orthodontic graduates recruited by the Company
will be required (in most cases) to complete a mentoring program pursuant to
which such graduates will provide treatment under the supervision and guidance
of an experienced Allied Orthodontist for a period of time to refine their
skills before assuming primary responsibility for patient care at a satellite
office of an Allied Practice.
Capitalizing on the Best Demonstrated Practices of Allied
Orthodontists. The Company believes that one of its most valuable practice
management services will be its ability to identify practice-level strategies
that have proven successful for individual Allied Practices and share this
information among other Allied Practices.
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Management will routinely evaluate the policies and procedures of the Allied
Practices, including such critical areas as treatment quality, delivery of
patient care, practice-building, marketing, patient financing programs and
expense control. The Company will provide Allied Orthodontists with comparative
operating and financial data that will enable Allied Orthodontists to detect
areas of their practices that could be improved. The Company will provide its
own analysis of such operating and financial data and recommend changes to
improve performance. The Company expects that a primary means of identifying and
implementing solutions to particular practice issues will be to consult with
Allied Practices that have had demonstrated success in a certain area. The
Company generally will seek to facilitate communication among Allied Practices
through periodic conferences and meetings and, ultimately, through a proprietary
intranet system.
Achieving Operating Efficiencies and Economies of Scale. The Company
intends to implement a variety of operating procedures and systems to improve
the productivity and profitability of each orthodontic practice which becomes an
Allied Practice and to achieve economies of scale. The Company will implement
centralized payroll processing, inventory control and national group purchasing
contracts. The Company plans to implement appropriate credit and collection
policies which will accommodate specific needs of the target market of each
Allied Practice. Management believes that patient flow and work flow could be
enhanced by physical improvements in designs to facilities, which should result
in an increase in the number of patients seen and an increase in employee and
orthodontist productivity. If such physical improvement in design is supported
by an adequate return on investment, the Allied Practice and the Company may
undertake such design changes. Operating efficiencies and economies will be
instituted on a per market or per Allied Practice need basis after thorough
analysis, including review of work flow, patient flow, aged accounts receivable
history, facilities, employee work load and productivity, and employee and
patient satisfaction.
Increasing the Affordability of Orthodontic Care through Flexible Payment
Plans. The Company will assist Allied Practices in developing and implementing
payment plans designed to make orthodontic services more affordable to
prospective patients, thereby making orthodontic services available to a larger
segment of the population in their respective markets. Many of the Founding
Practices have historically received a down payment of approximately 20% of the
total cost of services, which is typical in the orthodontics industry and is
based on the costs incurred by an orthodontic practice at the time treatment is
initiated. Recognizing that orthodontic services are largely discretionary and
that a significant down payment is often a deterrent to prospective patients,
the Company believes that flexible payment plans are an effective means of
increasing patient volume. Management believes that the markets in which Allied
Practices are located are different and payment plans should be tailored to
respond to the various market demands and opportunities. The Company will make
general recommendations to all Allied Practices with respect to instituting
flexible payment plans and will develop and implement market-tailored plans upon
the request of individual Allied Practices. In addition, the Company will
provide the working capital necessary for the Allied Practices to implement
flexible payment plans which may result in the reduction or elimination of down
payments.
Stimulating Demand in Local Markets Through Aggressive Marketing. In
consultation with and upon approval of the Allied Practices, the Company intends
to develop and implement aggressive and innovative marketing plans to augment
each Allied Practice's referral and other marketing systems currently in place.
Management believes that the orthodontic industry has not taken advantage of the
gains that can be achieved through strategic direct marketing and intends to,
upon request of an Allied Practice, implement aggressive direct marketing
campaigns. In addition, certain of the Founding Practices have developed
referral systems with local dentists, to achieve above-average practice revenues
and growth. Upon the request of an Allied Practice and in appropriate markets,
the Company will attempt to reach potential patients through print, local
television and radio advertising.
GROWTH STRATEGY
Management believes the continued growth of the Founding Practices and the
financial support for the development of new Allied Practices are key components
of the future success of the Company. To increase the Company's revenues and
profits and gain market share, management intends to initiate a growth strategy
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designed to increase the number of Allied Practices and Allied Orthodontists
over time. Management's expansion strategy includes:
Affiliations with Orthodontic Practices. Management believes that the
Company's target market for affiliations includes approximately half of the
orthodontic practices in the United States (approximately 4,500 practices),
because these practices fit the OrthAlliance model of high quality and
opportunity for revenue and earnings growth. Management believes that
affiliation will be an attractive option for many orthodontists because the
Company intends to (i) provide the capital to open and integrate new orthodontic
offices into existing Allied Practices, (ii) identify and recruit qualified
associate orthodontists for the Allied Practices, (iii) design and offer
business and clinical systems for each Allied Practice, (iv) with the approval
of the Allied Orthodontist, hire the necessary business and non-orthodontic
personnel for each new Allied Practice, (v) help increase each Allied Practice's
market share and the number of new patients seen by recommending successful
marketing and advertising strategies, and (vi) reduce the time Allied
Orthodontists spend on administrative and business related tasks, allowing them
to focus on delivering quality patient care. The shares of Common Stock
registered pursuant to this Offering will be used in connection with future
affiliations with Allied Practices.
Developing Orthodontic Satellite Offices. Where management determines
market demand will support practice expansion, the Company will assist Allied
Practices in developing satellite offices to be integrated into Allied Practices
to increase market share and revenues. The Company intends to provide capital
for practice expansion, market research, site selection, office design and
marketing support for satellite office development. Management believes the
Company's recruiting strategy complements growth through the addition of
satellite offices. Experienced associate orthodontists and recently graduated
orthodontists, who have completed a mentoring program, would be well suited to
assume primary responsibility for patient care at newly-established satellite
offices. See "-- Allied Practice Operations and Locations."
Internal Growth through Improved Operating Efficiencies. A fundamental
element of management's growth strategy is internal Allied Practice growth
through improving each practice's operating efficiencies. The Company intends to
offer a variety of operating procedures and systems to improve the productivity
and profitability of the Allied Practices. The Company's operating systems and
strategies, together with its recruiting, training, marketing and business
management services should allow Allied Orthodontists to focus their attention
on providing patient care, resulting in increased patient flow and enhanced
revenues. The Company plans to implement payroll processing, employee benefits
administration, financial reporting and analysis, inventory management and
national group purchasing discounted contracts and intends to implement
appropriate credit and collection policies which accommodate specific needs of
the general target markets of each Allied Practice. Operating efficiencies and
economies will be instituted on a per market or per Allied Practice need basis
after thorough analysis, including review of work flow, patient flow, aged
accounts receivable history, facilities, employee work load and productivity,
employee satisfaction and patient satisfaction.
ALLIED PRACTICE OPERATIONS AND LOCATIONS
Payment Plan; Case Fees. At the initial orthodontic treatment, the patient
signs a contract outlining the terms of the treatment, including the anticipated
length of treatment and the total fees. Each Allied Orthodontist determines the
appropriate fee to charge for services to patients based upon market conditions
in the area served by that Allied Orthodontist. Generally, the amount of fees
charged by the Allied Orthodontists are independent of the patient's source of
payment. The number of required monthly payments is estimated at the beginning
of the case and generally corresponds to the anticipated number of months of
treatment. Depending on the patient's credit history, the down payment will
range from a substantial down payment to no down payment. Patients are typically
required to pay equal monthly installments although each Allied Practice will
offer a payment plan tailored to its market and patients.
If the treatment period exceeds the period originally estimated by the
orthodontist, the patient and the Allied Orthodontist will determine whether
payment for additional treatment will be required. If the treatment is completed
prior to the scheduled completion date, the patient is required to pay the
remaining balance of the contract. If a patient terminates the treatment prior
to the completion of the treatment period, the patient is required to pay the
balance due for services rendered to date.
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Other payment plans with lower monthly payments are available for patients
who have insurance coverage for the treatment. Approximately 40% of the patients
treated at the Allied Practices have some form of orthodontic insurance
coverage. Payments for patients with insurance may be lower, depending upon the
amount of the fee paid on behalf of the patient by insurance policies. For
patients with insurance coverage, the portion of the fee not covered by
insurance is paid by the patient and is not waived or discounted by the Allied
Practice.
Information Systems ("IS"). The Company plans to implement a comprehensive
IS strategy over the next several years. The Company will implement a
communications and data transmission program utilizing a proprietary intranet
system and commercially available integration technology. Typically, an
orthodontic practice utilizes two types of systems. The first system is the
accounting and general ledger system and the second is the production system.
The accounting and general ledger system will be implemented promptly upon the
Allied Practice's affiliation with the Company. The production system, which
provides patient and practice management functions, will take more time to
implement. While it is the Company's stated objective to protect the computer
system and applications investment of each Allied Practice, management intends
to use a combination of integration and interface technologies to tie together
the disparate systems.
Purchasing. The Company plans to coordinate quantity discounts of
equipment, office furniture, inventory and supplies for the Allied Practices in
order to reduce per unit costs. In addition, the Company will negotiate
arrangements with other suppliers, such as casualty insurance carriers, that
should provide cost savings to the Allied Practices.
Locations. Upon consummation of the Transfers, the Company will provide
management services to the following locations:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
STATE ORTHODONTISTS(1) OFFICES CITIES
- ----- ---------------- --------- ---------
<S> <C> <C> <C>
Alabama............................................ 3 3 3
Arizona............................................ 2 2 2
California......................................... 14 21 17
Florida............................................ 18 31 23
Georgia............................................ 17 38 27
Indiana............................................ 8 14 13
Kentucky........................................... 2 6 6
Michigan........................................... 1 1 1
Minnesota.......................................... 2 2 2
Mississippi........................................ 2 6 6
Pennsylvania....................................... 2 3 3
South Carolina..................................... 3 5 5
Tennessee.......................................... 2 3 3
Texas.............................................. 4 8 8
Utah............................................... 2 2 2
Virginia........................................... 2 2 2
-- --- ---
Total.................................... 84 147 123
== === ===
</TABLE>
- ---------------
(1) The Founding Practices include an aggregate of 82 Allied Orthodontists, two
of whom operate in two states.
AGREEMENTS WITH ALLIED PRACTICES AND ALLIED ORTHODONTISTS
Each Founding Practice has entered into, and each additional Allied
Practice will enter into, three material agreements in connection with the
Transfers or Future Transfers, as applicable: (i) an acquisition agreement,
which may be in the form of a purchase and sale agreement whereby OrthAlliance
agrees to acquire certain of the assets or stock of an entity holding certain
assets of the Founding or Allied Practice, or an agreement and plan of
reorganization, whereby the Founding or Allied Practice transfers certain assets
to OrthAlliance; (ii) either a Service Agreement or a Consulting Agreement
(depending upon the applicable regulatory requirements), whereby OrthAlliance
agrees to provide management or consulting services to the Founding or Allied
Practice;
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and (iii) an Employment Agreement between the Founding or Allied Practice and
each related Allied Orthodontist who is an equity holder in the Founding or
Allied Practice or who provides orthodontic services through such practice for
more than ten days each month. Pursuant to the Merger, the agreements that were
originally executed between a Founding Practice and either USOC or Premier, will
become agreements of OrthAlliance and will be effective upon the closing of the
IPO.
Acquisition Agreements. The Company will acquire by transfer (in
accordance with SAB 48) certain operating assets or stock of each Founding
Practice pursuant to an asset purchase and sale agreement, an agreement and plan
of reorganization or a stock purchase and sale agreement. The Future Transfers
will be accounted for as asset acquisitions at fair market value. Each asset
purchase and sale agreement generally provides for the sale by the Founding
Practice of its equipment, licenses (to the extent assignable by law),
inventory, accounts receivable, furniture and other personal property, or some
combination thereof based on applicable state laws or regulations, in exchange
for consideration based on the Founding Practice's Adjusted Patient Revenue. Up
to 20% of the aggregate purchase price to be paid for assets transferred to the
Company is generally payable in cash, as determined by each Founding Practice,
with the remainder payable in shares of Common Stock. The aggregate
consideration paid by the Company in connection with the Transfers is
approximately $84.4 million. Certain liabilities, including patient prepayments,
of the Founding Practices have been assumed totaling $4.2 million. See "Certain
Transactions."
Each stock purchase and sale agreement generally provides for the exchange
of the stock of an entity holding certain assets of the Founding Practice by its
stockholder(s) and the payment of consideration to its stockholder(s), which
consideration is generally the same as the consideration being paid pursuant to
the asset purchase and sale agreements. Each agreement and plan of
reorganization generally provides for the transfer of certain assets of the
Founding Practice to OrthAlliance, the cancellation or retirement of each share
of stock in an entity holding certain assets of the Founding Practice, and the
payment of consideration to the stockholders of such entity, which consideration
is generally the same as the consideration being paid pursuant to the asset
purchase and sale agreements. Each asset purchase and sale agreement, stock
purchase and sale agreement and agreement and plan of reorganization provides
for certain incidental registration rights with respect to the shares of Common
Stock paid to the Founding Practice or the Allied Orthodontist, as the case may
be. See "Description of Capital Stock -- Registration Rights."
In Transfers requiring stock acquisitions, the Company generally will
acquire the stock of the Original Entity through which the applicable Founding
Practice has historically operated and generated revenue. The New Entity through
which the Founding Practice will provide orthodontic services on a going forward
basis is formed to ensure that the Company does not violate applicable state law
or regulation regarding the corporate practice of orthodontics. See "Risk
Factors -- Risks Related to Changes in Government Regulation," "The Company" and
"Business -- Government Regulation." Management believes that the Future
Transfers will be effected through agreements and plans of reorganization on
generally similar terms as described above.
Service Agreements. The parties to each Service Agreement include the
Company, as successor through the Merger, and the Founding Practice, which
typically is a professional corporation or association owned by the related
Allied Orthodontist. Each Service Agreement generally requires the Company to
perform the following services for the Founding Practices: provide and maintain
specified furnishings and equipment; provide necessary employees (except
orthodontists and, where applicable law requires, hygienists and dental
assistants); establish appropriate business systems; purchase and maintain
inventory; perform payroll and accounting functions; provide billing and
collection services with respect to patients, insurance companies, and
third-party payors; arrange certain legal services not related to malpractice
litigation; design and execute a marketing plan; advise with respect to new
office locations; and manage and organize the Founding Practice's files and
records, including patient records where permitted by applicable law. If the
Founding Practice lacks sufficient funds to pay its current expenses, the
Company is also required to advance funds to the Founding Practice for the
purpose of paying such expenses. In exchange for performing the services
described above, the Company receives a management fee based on one of the three
fee structures described in Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview.
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The term of each Service Agreement is 20 years, subject to prior
termination by either party in the event the other party becomes subject to
voluntary or involuntary bankruptcy proceedings or materially breaches the
agreement, subject to a cure period. In addition, the Founding Practices may
terminate the Service Agreements upon the occurrence of a change of control of
OrthAlliance (as defined therein, which does not include a transaction approved
by the Company's Board of Directors). Upon the expiration or termination of the
Service Agreement, the Founding Practice may, and in certain circumstances must,
repurchase for cash (at book value) certain assets, including all equipment, and
assume certain liabilities of the Company related to the Founding Practice.
Each Service Agreement is generally not assignable by either party thereto
without the written consent of the other party; however, the Company may assign
the Service Agreement without the Founding Practice's consent to any entity
under common control with the Company. The Company and the Founding Practice
agree to indemnify each other for costs and expenses incurred by such other
party that are caused directly or indirectly by, as the case may be, the
Company's or the Founding Practice's intentional or negligent acts or omissions.
In the case of the Founding Practice's obligation to indemnify the Company, such
obligation also applies to intentional or negligent acts and omissions occurring
prior to the date of the Service Agreement. Certain of the Allied Practices
subject to Future Transfers will enter into Service Agreements on generally
similar terms.
Consulting Agreements. The parties to each Consulting Agreement include
the Company, as successor through the Merger, and the Founding Practice. Certain
provisions of the Consulting Agreement are substantially similar to the Service
Agreement, including provisions relating to the Company's obligation to loan
funds to the Founding Practice in the event the Founding Practice is unable to
pay its current expenses, termination of the Consulting Agreement, repurchase of
assets and assumption of liabilities by the Founding Practice upon expiration or
termination, assignment, and indemnification.
The services provided by the Company to the Founding Practice under each
Consulting Agreement generally include consulting with respect to equipment and
office needs; preparing staffing models appropriate for an Founding Practice;
advising and training with respect to business systems; purchasing and
maintaining inventory; advising with respect to and providing or arranging
accounting and bookkeeping services; advising with respect to developing a
marketing plan; assessing the financial feasibility of establishing new offices;
providing billing and collection services; and assisting the Founding Practice
in organizing and developing filing and recording systems. In exchange for such
services, the Company receives a consulting fee based on one of the three fee
structures described in Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview. Certain of the Allied Practices
subject to the Future Transfers will enter into Consulting Agreements on
generally similar terms.
Pursuant to both the Service Agreements and Consulting Agreements, the
Company's Allied Orthodontists maintain full control over and ownership of their
orthodontic practices, determine which personnel will be affiliated with the
Founding Practices and set their own standards of practice to promote quality
orthodontic care. The Company does not engage in the practice of orthodontics or
dentistry. Each Allied Orthodontist is responsible for compliance of his or her
Founding Practice with state and local regulations applicable to the practice of
orthodontics and with licensing or certification requirements. Each Founding
Practice, in its sole discretion, determines the fees to be charged for services
provided to patients based upon market conditions in the service area and other
factors deemed appropriate by the Founding Practice. Each Founding Practice
executes payor contracts and each Allied Orthodontist acquires and pays for
malpractice insurance coverage.
Employment Agreements. Each Allied Orthodontist who is or becomes an
equity holder in a Founding Practice or who provides orthodontic services
through a Founding Practice for more than 10 days a month is required to execute
an employment agreement with the Founding Practice. Each employment agreement
generally provides that the Allied Orthodontist will perform professional
services for the Founding Practice for a period of five years, subject to prior
termination, (i) for cause by the Founding Practice (which generally means
death, incapacity, willful misconduct, conviction for a felony, or chronic
alcoholism or drug addiction), (ii) by the Allied Orthodontist in the event of a
material breach by the Founding Practice, and (iii) by the Allied Orthodontist
in the event of the Company's bankruptcy. The Allied Orthodontist agrees that
following termination or expiration of the employment agreement, he or she will
not compete for a period of two years in
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<PAGE> 29
the market in which the Founding Practice operates an office and will limit the
methods of advertising in the area in which a Founding Practice is located. Each
Allied Orthodontist who is or becomes an equity holder in an Allied Practice
subject to a Future Transfer will enter into an Employment Agreement on
generally similar terms.
GOVERNMENT REGULATION
General. 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 healthcare
companies is increasing. Every state imposes licensing requirements on
individual orthodontists and on facilities operated by and services rendered 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, Allied
Practices and Allied Orthodontists may become subject to compliance with
additional regulations.
The operations of the Allied Practices must meet federal, state and local
regulatory standards in the areas of safety and health. Historically, compliance
with those standards has not had any material adverse effect on the operations
of the Founding Practices. Based on its familiarity with the historical
operations of the Founding Practices and the activities of the Company's Allied
Orthodontists, management believes that the Founding Practices are in compliance
in all material respects with all applicable federal, state and local laws and
regulations relating to safety and health.
State Legislation. The laws of several states prohibit orthodontists from
splitting fees with non-orthodontists. Furthermore, many states prohibit
nonorthodontic entities from practicing orthodontics, employing orthodontists,
or in some circumstances, employing orthodontic assistants. The laws of some
states prohibit advertising orthodontic services under a trade or corporate name
and require that all advertising be in the name of the orthodontist. A number of
states also regulate the content of advertisement of orthodontic services and
the use of promotional gift items. A number of states limit the ability of a
non-licensed dentist or non-orthodontist to own equipment or offices used in an
orthodontic practice. Some of these states allow leasing of equipment and office
space to an orthodontic practice, under a bona-fide lease, if the equipment and
office remain in the complete care and custody of the orthodontist. Management
believes, based on its familiarity with the historical operations of the
Founding Practices, the activities of the Company's Allied Orthodontists and
applicable regulations, that the Company's current and planned activities do not
constitute the prohibited practices contemplated by these statutes and
regulations. There can be no assurance, however, that future interpretations of
such laws, or the enactment of more stringent laws, will not require structural
and organizational modifications of the Company's initial relationships with its
Allied Orthodontists or the operation of the Allied Practices. In addition,
statutes in some states could restrict expansion of Company operations in those
jurisdictions. The Company either enters into a Service Agreement or Consulting
Agreement depending upon applicable state regulations.
Regulatory Compliance. The Company monitors developments in laws and
regulations relating to the practice of orthodontics and dentistry. The Company
may be required to modify its agreements, operations and marketing strategies
from time to time in response to changes in the business and regulatory
environment. The Company intends 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 materially affect the Company's business, financial
condition and results of operations.
COMPETITION
The Company anticipates facing substantial competition from other entities
as OrthAlliance seeks to affiliate with additional orthodontic practices. The
Company is aware of several practice management companies that are focused in
the area of orthodontics. Additional entities may enter this market and compete
with the Company. Certain of these competitors have greater financial or other
resources than the Company.
The business of providing orthodontic services is highly competitive in
each market in which the Founding Practices and other practices operate.
Founding Practices compete with orthodontists who maintain single offices or
operate a single satellite office, as well as with orthodontists that maintain
group practices or operate in multiple offices. Founding Practices also compete
with general dentists and pedodontists who provide certain
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<PAGE> 30
orthodontic services, some of whom have more established practices. The
provision of orthodontic services by such dentists and pedodontists has
increased in recent years. There can be no assurance that the Company or the
Allied Practices will be able to compete effectively within their markets.
EMPLOYEES
Upon completion of the Transfers and the Merger, OrthAlliance will employ
an aggregate of approximately 542 full-time employees. None of the Company's
employees are represented by a collective bargaining agreement. OrthAlliance
considers its relationship with its employees to be good.
PROPERTIES
The Company leases approximately 1,700 square feet of office space in
Torrance, California for its headquarters and approximately 500 square feet of
office space in its Atlanta, Georgia office.
INTELLECTUAL PROPERTY
OrthAlliance has applied for federal registration of the service mark
"OrthAlliance." Management intends to utilize the service mark, as allowed by
applicable law, in the Company's marketing and advertising campaigns in order to
associate the name OrthAlliance with a reputation for nationwide quality
orthodontic care.
LITIGATION AND INSURANCE
The Company does not have any pending litigation that if adversely
determined would have a material adverse effect on the Company. The Allied
Practices provide orthodontic services to the public and are exposed to the risk
of professional liability and other claims. Such claims, if successful, could
result in substantial damage awards to the claimants that may exceed the limits
of any applicable insurance coverage. Although the Company does not control the
practice of orthodontics by the Allied Practices, it could be asserted that the
Company should be held liable for malpractice of an Allied Orthodontist.
The Company maintains general liability insurance for itself and on behalf
of the Allied Practices and it is anticipated that, where permitted by
applicable law and insurers, the Company will be named as an additional insured
under the policies of the Allied Practices. There can be no assurance that any
claims against the Company or any of the Allied Practices will not be
successful, or if successful, will not exceed the limits of available insurance
coverage or that such coverage will continue to be available at acceptable
rates.
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<PAGE> 31
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Sam Westover.................................... 42 President, Chief Executive Officer and
Director
Robert S. Chilton............................... 39 Chief Financial Officer
P. Craig Hethcox................................ 45 Chief Operating Officer
Paul H. Hayase.................................. 42 Senior Vice President -- Human Resources,
General Counsel and Secretary
Randall K. Bennett, D.D.S., M.S................. 42 Director
Douglas D. Durbin, D.M.D., M.S.D................ 42 Director(1)
U. Bertram Ellis, Jr............................ 43 Director(1)
Craig L. McKnight............................... 46 Director(1)
Randall A. Schmidt, D.D.S., M.S.D............... 40 Director(1)
W. Dennis Summers............................... 48 Director(1)
Jonathan E. Wilfong............................. 48 Chairman of the Board of Directors and
Consultant
</TABLE>
- ---------------
(1) Dr. Durbin, Dr. Schmidt, Mr. Summers, Mr. McKnight and Mr. Ellis will be
elected to serve as Directors immediately preceding consummation of the
Transfers.
Sam Westover has served as a Director, President and Chief Executive
Officer of OrthAlliance since October 1996. From August 1993 until July 1996,
Mr. Westover served as President and Chief Executive Officer of Systemed Inc., a
pharmacy benefit management company, where he also served as a Director from
July 1992 until February 1997. From January 1993 until August 1993, Mr. Westover
served as Senior Vice President, Chief Financial Officer and Treasurer of
Wellpoint Health Networks Inc., a health insurance company. Prior to joining
Wellpoint, Mr. Westover served as Chief Financial Officer and Senior Vice
President, Corporate Financial Services of Blue Cross of California, a position
to which he was named in May 1990.
Robert S. Chilton has served as Chief Financial Officer of OrthAlliance
since May 1997. From April 1994 until May 1997, Mr. Chilton served as Vice
President/Controller of E & S Ring Management Corporation, a real estate
management firm. Mr. Chilton was Controller of Karl Storz Endoscopy-America,
Inc., a medical device manufacturer and distributor, from October 1987 until
April 1994. Mr. Chilton is a Certified Public Accountant, and from February 1985
to October 1987 was employed by KPMG Peat Marwick.
P. Craig Hethcox will become Chief Operating Officer of OrthAlliance upon
the consummation of the Transfers. From January 1997 to the date of the Merger,
Mr. Hethcox has served as Chief Executive Officer of USOC. From July 1994 to
December 1996, Mr. Hethcox served as Chief Operating Officer for Equimed, Inc.,
where he directed the corporate operations for sixty-five ophthalmology,
oncology and surgical center entities. From 1988 to June 1994, Mr. Hethcox
served as Vice President of Operations for Medical Care America, where he was
responsible for the operations of the then largest practice management company
with surgical centers. Mr. Hethcox also held senior management positions with
Medical Corporation of America, Inc., and Omni Eye Services, Inc., both
ophthalmology practice management operations, and was Chief Executive Officer of
Lakeside Community Hospital.
Paul H. Hayase has served as Senior Vice President -- Human Resources,
General Counsel and Secretary of OrthAlliance since October 1996. From August
1995 until January 1997, Mr. Hayase served as Vice President -- Human Resources,
General Counsel and Secretary of Systemed Inc. Mr. Hayase served as Senior
Counsel of Ralphs Grocery Company, a supermarket chain in California, from
November 1993 to August 1995. From January 1985 to November 1993, Mr. Hayase
served as Senior Vice President, General Counsel of Knapp Communications
Corporation, a magazine publishing company.
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<PAGE> 32
Randall K. Bennett, D.D.S., M.S. has served as a Director of OrthAlliance
since its inception. Dr. Bennett has practiced orthodontics in Salt Lake City,
Utah since 1989 and he practiced in Beverly Hills, California from 1988 to 1989.
Dr. Bennett graduated from Loma Linda University in 1988 with an M.S. degree in
orthodontics and from the University of Alberta in 1981 with a D.D.S. degree.
Douglas D. Durbin, D.M.D., M.S. has agreed to serve and will be elected a
Director of OrthAlliance immediately preceding the consummation of the
Transfers. Dr. Durbin has served as President of The Kentucky Center for
Orthodontics and Dento-Facial Orthopedics, a Founding Practice, since 1983, and
manages six practice locations and 20 employees. Dr. Durbin is a member of the
American Association of Orthodontists, the American Dental Association and the
Kentucky Association of Orthodontists, a Diplomate of the American Board of
Orthodontics and has served as Secretary, Treasurer, and President of the
Bluegrass Dental Society. Dr. Durbin graduated from the University of Kentucky
College of Dentistry with a D.M.D. degree in 1978 and received his M.S.D. and
Certificate in Orthodontics from the University of Kentucky College of Dentistry
in 1983.
U. Bertram Ellis, Jr. has agreed to serve and will be elected a Director of
OrthAlliance immediately preceding the consummation of the Transfers. Since
April 1996, Mr. Ellis has served as President, Chief Executive Officer and Chief
Operating Officer of Broadcast Development Corporation. Since 1996, Mr. Ellis
has served as Chairman of the Board and Chief Executive Officer of IXL Holdings,
Inc. ("IXL"), a multimedia company. Mr. Ellis founded and served as President
and Chief Executive Officer of Ellis Communications, Inc., a media company, from
1993 to April 1996. From 1992 to 1993, Mr. Ellis was President and Chief
Executive Officer of American Innovations, Inc., a manufacturer of hairbows that
filed a petition pursuant to Chapter 11 of the U.S. Bankruptcy Code in 1993.
From 1986 until 1992, Mr. Ellis served as the President, Chief Executive Officer
and Chief Operating Officer of Act III Broadcasting, a broadcast group of eight
Fox-affiliate stations. Mr. Ellis serves as a director of NOVA Information
Systems, Inc., Promus Hotel Corporation, Endeavor Technologies, Inc., First
Union National Bank of Georgia and Upper Chattahoochee RiverKeeper.
Craig L. McKnight has agreed to serve and will be elected a Director of
OrthAlliance immediately preceding the consummation of the Transfers. Since
March 1995, Mr. McKnight has served as Executive Vice President of Magellan
Health Services ("Magellan"), which was previously known as Charter Medical
Corporation, and since October 1995 Mr. McKnight has also served as Chief
Financial Officer of Magellan. From June 1994 to March 1995, Mr. McKnight was
responsible for the Health Care Practice of Coopers & Lybrand, L.L.P. in
Philadelphia, Pennsylvania, and, prior thereto, was responsible for the Health
Care Practice of Coopers & Lybrand, L.L.P. in California.
Randall A. Schmidt, D.D.S., M.S.D. has agreed to serve and will be elected
a Director of OrthAlliance immediately preceding the consummation of the
Transfers. Dr. Schmidt has been in the practice of orthodontics since 1983 in
northwest Indiana, where he is a co-owner of Orthodontic Affiliates, P.C., a
Founding Practice. Dr. Schmidt is a member of the American Association of
Orthodontists, American Dental Association and the Indiana Society of
Orthodontists. Dr. Schmidt graduated from Indiana University in 1981 with a
D.D.S. degree and received his M.S.D. and Certificate in Orthodontics from
Indiana University in 1983.
W. Dennis Summers has agreed to serve and will be elected a Director of
OrthAlliance immediately preceding the consummation of the Transfers. Since
1984, Mr. Summers has served as a principal of Roberts, Isaf & Summers, P.C.
(and its predecessor firms), a law firm located in Atlanta, Georgia. Mr. Summers
specializes in corporate and business matters.
Jonathan E. Wilfong has served as Chairman of the Board of Directors of
OrthAlliance since May 1997. Mr. Wilfong has served as an executive consultant
to OrthAlliance since its inception and has served as consultant to USOC since
June 1996. Mr. Wilfong is the founder and a principal of Newfound Capital
Associates, an investment banking advisory firm founded in 1996 that specializes
in advising high growth businesses on capital formation strategies and
acquisition transactions. Mr. Wilfong is a Certified Public Accountant, and from
1983 to 1996 was a partner with Price Waterhouse LLP in Atlanta, Georgia and
Greenville, South Carolina.
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<PAGE> 33
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes which
consist, as nearly as practicable, of one-third of the total number of directors
serving on the Board of Directors. The Board of Directors will have up to nine
members, is currently composed of three members and immediately prior to
consummation of the Acquisition will increase to eight members, as named herein.
The members of each class serve staggered three-year terms following the initial
terms of such classes. The initial terms of Class I, Class II and Class III
directors expire at the annual stockholders' meetings in 1998, 1999 and 2000,
respectively. Dr. Durbin and Mr. Summers will be members of Class I; Dr. Bennett
is a member and Dr. Schmidt and Mr. Ellis will be members of Class II; and
Messrs. Westover and Wilfong are members and Mr. McKnight will be a member of
Class III.
BOARD COMMITTEES
The Board of Directors has established an Executive Committee, a Nominating
Committee, an Audit Committee and a Compensation Committee. Messrs. Westover and
Wilfong and Drs. Bennett and Durbin will serve on the Executive Committee.
Messrs. Summers, Westover and Wilfong will serve on the Nominating Committee.
Mr. Wilfong and Dr. Bennett will each serve on the Audit Committee and the
Compensation Committee. The Executive Committee is authorized by the Board of
Directors to take all action which may be delegated by the Board of Directors
under the DGCL. The Nominating Committee recommends candidates for election to
the Company's Board of Directors, examines the performance of incumbent
Directors and makes recommendations concerning the retention of such Directors.
The Audit Committee recommends the annual appointment of the Company's auditors,
with whom the Audit Committee reviews the scope of audit and non-audit
assignments and related fees, accounting principles used by the Company in
financial reporting and the adequacy of the Company's internal control
procedures. The Compensation Committee administers the 1997 Employee Stock
Option Plan. See "Stock Plans -- Administration of the Stock Plans." The
Compensation Committee also has the responsibility for reviewing and approving
salaries, bonuses, and other compensation and benefits of executive officers,
and advising management regarding benefits and other terms and conditions of
compensation.
DIRECTOR COMPENSATION
Members of the Board of Directors are reimbursed for their out-of-pocket
expenses for each meeting attended but otherwise serve without cash
compensation. The Company has adopted the 1997 Non-Employee Director Stock Plan,
pursuant to which each non-employee director (the "Outside Directors") receives
a nondiscretionary grant to purchase 5,000 shares of Common Stock upon his or
her election to the Board and, if serving as an Outside Director following the
annual meeting each year, an additional nondiscretionary grant for the purchase
of 5,000 shares of Common Stock. See "-- Stock Plans -- 1997 Non-Employee
Director Stock Plan."
EXECUTIVE COMPENSATION
OrthAlliance was incorporated in October 1996 and did not conduct any
operations prior to that time. The Company anticipates that during fiscal 1997
its President and Chief Executive Officer and the three other most highly
compensated executive officers who are anticipated to receive annualized
compensation in excess of $100,000 will be, respectively, Messrs. Westover,
Hethcox, Hayase and Chilton. Their expected annualized base salaries for 1997
are $250,000, $185,000, $165,000 and $135,000, respectively. See "-- Employment
Agreements."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Westover,
Hethcox and Hayase providing for annual base salaries of $250,000, $185,000 and
$165,000, respectively, with each person being eligible for a cash bonus of up
to 30% of his base salary. Additionally, the agreements provide for the grant of
options for the purchase of Common Stock to each of Messrs. Westover, Hethcox
and Hayase for 300,000, 100,000 and 75,000 shares of Common Stock, respectively,
and such options will vest (i) 20% upon the closing
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<PAGE> 34
of the IPO and (ii) 20% per year on the first through the fourth anniversary
dates of the effective date of the IPO. These options expire ten years from the
date of grant and are exercisable at the initial public offering price in the
IPO. Each employment agreement is for an initial term of five years with an
automatic renewal for successive one year terms unless prior notice of
termination is provided. The Company may terminate an employment agreement (i)
for cause, (ii) without cause upon 30 days prior notice, or (iii) upon death or
disability of the employee. The employee may terminate the employment agreement
within 120 days after a constructive termination (as defined therein). If the
employee is terminated by the Company without cause or the employee terminates
the employment agreement within 120 days following a constructive termination,
the Company is required to pay such employee a lump sum severance equal to two
times the applicable annual base salary. Each employment agreement contains a
provision that if the employee is terminated within a twelve-month period
following a change in control of the Company (as defined therein), the Company
will pay such employee three times the sum of (i) the employee's annual base
compensation and (ii) the maximum possible cash bonus for such year. In
addition, upon a change in control, the Company will pay the employee any
accrued salary, benefits or reimbursements and the employee's options will fully
vest and become immediately exercisable for the longer of (i) 90 days from the
change in control or (ii) the time period specified in the stock plan. Each
agreement prohibits the employee from competing with the Company for a period of
two years following termination of employment.
The Company has entered into a letter agreement with Mr. Chilton providing
for an annual base salary of $135,000, and a cash bonus of up to 30% of his
annualized base salary. Additionally, the Company has granted Mr. Chilton an
option for the purchase of 50,000 shares of Common Stock, with a vesting
schedule consistent with the vesting schedule for Messrs. Westover, Hethcox and
Hayase discussed above.
All options for the purchase of Common Stock granted to management
personnel discussed herein have an exercise price equal to the price of the
Common Stock to the public in the IPO.
STOCK PLANS
OrthAlliance has adopted the 1997 Employee Stock Option Plan and the 1997
Non-Employee Director Stock Plan (together, the "Stock Plans"). The Company
intends to register the shares of Common Stock issuable upon exercise of options
granted under the Stock Plans and, upon registration, such shares will be
eligible for resale in the public market, subject to applicable rules and
regulations of the Securities Act.
1997 Employee Stock Option Plan. The Board of Directors has adopted and
the stockholder has approved the Company's 1997 Employee Stock Option Plan (the
"Employee Plan"). Awards under the Employee Plan are to be determined by the
Compensation Committee and granted to officers and employees of the Company in
the form of non-qualified or incentive stock options. The Employee Plan may be
terminated by the Board of Directors at any time.
A total of 1,000,000 shares of Common Stock are reserved for issuance
pursuant to the Employee Plan, subject to certain anti-dilution provisions.
Options for the purchase of 600,000 shares of Common Stock have been granted to
certain officers of the Company at an exercise price equal to the price to the
public in the Offering, which options vest 20% upon the closing of the Offering
with the balance vesting 20% per year on the first through fourth anniversary
dates of the date of this Prospectus. All options expire ten years from the date
of grant. See "Management -- Employment Agreements."
1997 Non-Employee Director Stock Plan. The Board of Directors has adopted
and the stockholder has approved the 1997 Non-Employee Director Stock Option
Plan (the "Non-Employee Director Plan"). Awards under this plan are to be
granted to non-employee directors ("Outside Directors") of the Company. The plan
is intended to allow Outside Directors receiving grants to be Non-Employee
Directors, as defined in Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), with respect to the Company's Stock Plans and,
accordingly, is intended to be self-governing with respect to the Outside
Directors.
A total of 200,000 shares of Common Stock are reserved for issuance to the
Outside Directors pursuant to the Non-Employee Director Plan. Each person who is
elected or appointed as an Outside Director will be granted a nondiscretionary
option to purchase 5,000 shares of Common Stock at the time of his or her
election or appointment. Commencing in 1998, each person who continues to serve
as an Outside Director following the
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<PAGE> 35
annual meeting each year will receive a nondiscretionary option to purchase
5,000 shares of Common Stock. Options issued to Outside Directors pursuant to
this plan will be non-qualified stock options, and will expire ten years from
the date of grant. The exercise price of such options shall be equal to the
average closing bid price for the five trading days before the Company's annual
meeting of stockholders for the annual grants and for the five trading days
before election or appointment for the initial grants. Options issued to Outside
Directors become exercisable on the first anniversary of the date of grant.
Administration of the Stock Plans. The Employee Plan is administered by
the Compensation Committee of the Board of Directors. The Non-Employee Director
Plan is intended to be self-governing. With respect to the Employee Plan, the
Compensation Committee determines the persons to whom, and the times at which,
awards are granted, the types of awards granted, certain amendments to the plan
(as permitted) and all other related terms and conditions of the awards, subject
to the terms, conditions and limitations set forth therein. Under the Employee
Plan, the Compensation Committee must consist of at least two directors, and
with respect to grants of options or awards to any persons subject to Section 16
of the Exchange Act, the Compensation Committee must consist of at least two
directors who are Non-Employee Directors under Rule 16b-3.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate provides that no director of the Company shall be
liable for breach of fiduciary duty as a director except for (i) any breach of
the director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) for willful or negligent violations of certain
provisions of the DGCL imposing certain requirements with respect to stock
repurchases, redemptions and dividends; or (iv) any transaction from which the
director derived an improper personal benefit.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), a
corporation may indemnify any of its directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with a threatened,
pending or completed action, suit or proceeding brought against such officer or
director by reason of the fact that he or she is or was a director or officer
(i) if any such person acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the corporation and (ii) in
connection with any criminal action or proceeding if such person had no
reasonable cause to believe such conduct was unlawful. In actions brought by or
in the right of the corporation, however, Section 145 provides that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable for negligence or misconduct
in the performance of such person's duty to the corporation unless, and only to
the extent that, the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in review of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Pursuant to the Company's Certificate and Bylaws, the Company is obligated
to indemnify each of its directors and officers to the fullest extent permitted
by the DGCL. In addition, the Bylaws obligate the Company to purchase and
maintain insurance on behalf of any director or officer of the Company against
any liability asserted against and incurred by such director or officer, whether
or not the Company would have the power to indemnify such officer or director
against such liability under the provisions of the DGCL.
COMPENSATION COMMITTEE INTERLOCKS
The Company had no Compensation Committee prior to May 1997. Prior thereto,
the Board of Directors of the Company, and of USOC and Premier, respectively,
determined executive compensation. No executive officer of the Company serves as
a member of a compensation committee or as a director of any entity of which any
of the Company's directors serve as an executive officer.
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<PAGE> 36
CERTAIN TRANSACTIONS
USOC and Premier will complete the Merger prior to the consummation of the
Transfers of the Founding Practices. The Company was created as a shell
corporation to be activated in connection with the IPO. Prior to the Merger, the
sole stockholder of the Company held a minority interest in Premier, there were
two common investors between USOC and Premier, and there were no common owners
between USOC and the Company. The stockholders of USOC and Premier are
considered promoters; therefore, the Merger will be treated as part of the SAB
48 transaction with the Founding Practices that will result in carryover basis
of assets and liabilities of USOC and Premier. In the Merger, the outstanding
capital stock of USOC and Premier automatically converts into an aggregate of
1,750,000 shares of Common Stock and 250,000 shares of Class B Common Stock. The
stockholders of USOC and Premier receive 70% and 30%, respectively, of the
Common Stock and Class B Common Stock issued as consideration in the Merger.
The following reflects the distribution of the 70% of the Common Stock and
Class B Common Stock received from OrthAlliance by the stockholders of USOC in
connection with the Merger:
<TABLE>
<CAPTION>
CLASS B
NAME COMMON STOCK COMMON STOCK
- ---- ------------ ------------
<S> <C> <C>
Robert N. Pickron....................................... 557,170 79,596
Jonathan E. Wilfong..................................... 111,512 15,930
Marc Cooper............................................. 54,517 7,788
Peter Mills............................................. 50,800 7,257
Paul L. Ouellette....................................... 49,561 7,080
Robert D. Garces........................................ 47,083 6,726
William K. Farrar, Jr. ................................. 44,605 6,372
Hilbert Dreesen......................................... 39,649 5,664
The trustees of Marc Cooper Family Irrevocable GST
Trust................................................. 27,258 3,894
Whitetail Investments, LLC.............................. 26,763 3,823
Irrevocable Trust for the Benefit of Jessica Elizabeth
Pickron, T/U/A/ dated July 1, 1997.................... 24,780 3,540
Irrevocable Trust for the Benefit of John Norton
Pickron, T/U/A/ dated July 1, 1997.................... 24,780 3,540
Irrevocable Trust for the Benefit of Matthew Inaba
Pickron, T/U/A/ dated July 1, 1997.................... 24,780 3,540
Randall A. Schmidt...................................... 18,833 2,690
Irrevocable Trust for the Benefit of Allison Lindsey
Pickron, T/U/A/ dated July 1, 1997.................... 9,912 1,416
R.O. Parsons and Patricia Parsons....................... 9,912 1,416
Ben B. Pence............................................ 9,912 1,416
Peoples Bank SB Cust FBO Gilbert Carter IRA............. 9,912 1,416
The Sands Family Trust.................................. 9,912 1,416
Douglas Drymon Durbin................................... 7,434 1,062
Michael D. Goodwin and Patricia Y. Goodwin.............. 6,145 878
Keith S. Crawford....................................... 4,956 708
K. Robert Crowe......................................... 4,956 708
Orthodontic Affiliates, P.C. Profit Sharing Plan........ 4,956 708
Thomas Pickron.......................................... 4,956 708
Douglas E. Smith........................................ 4,956 708
The Surber Family Trust................................. 4,956 708
Gilbert V. Carter....................................... 4,262 609
James M. Callender and Pamela R. Callender.............. 2,478 354
Daniel J. Enger, Jr. ................................... 2,478 354
Terry Kreitzberg........................................ 2,478 354
MC Investments, LLC..................................... 2,478 354
Ronald G. Philipp....................................... 2,478 354
Daniel B. Snead, D.M.D., P.A. Profit Sharing Plan and
Trust................................................. 2,478 354
Mark D. Thebaut......................................... 2,478 354
Stephen C. Trawick...................................... 2,478 354
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
CLASS B
NAME COMMON STOCK COMMON STOCK
- ---- ------------ ------------
<S> <C> <C>
Paul Yurfest............................................ 2,478 354
Michael J. DeVito....................................... 1,488 211
Don E. Lahrman.......................................... 991 143
Michael J. DeVito, Smith Barney
Prototype PS Plan FBO Michael J. DeVito TTEE.......... 991 143
--------- -------
TOTAL......................................... 1,225,000 175,000
</TABLE>
The following reflects the distribution of the 30% of the Common Stock and
Class B Common Stock received from OrthAlliance by the stockholders of Premier
in connection with the Merger:
<TABLE>
<CAPTION>
CLASS B
NAME COMMON STOCK COMMON STOCK
- ---- ------------ ------------
<S> <C> <C>
Premier Orthodontic Ventures, LLC ("POV LLC")............. 378,000 54,000
Sam Westover.............................................. 63,000 9,000
Randall K. Bennett........................................ 42,000 6,000
J. Dalton Gerlach......................................... 42,000 6,000
------- ------
TOTAL........................................... 525,000 75,000
</TABLE>
The following reflects the distribution to the members of POV LLC of the
Common Stock and Class B Common Stock received in the Merger by POV LLC:
<TABLE>
<CAPTION>
CLASS B
CLASS A MEMBERS COMMON STOCK(1) COMMON STOCK
- --------------- --------------- ------------
<S> <C> <C>
Sam Westover............................................ 82,814 24,000
Randall K. Bennett...................................... 62,110 18,000
J. Dalton Gerlach....................................... 20,704 6,000
Paul H. Hayase.......................................... 20,704 6,000
------- ------
TOTAL......................................... 186,332 54,000
------- ------
CLASS B MEMBERS
- --------------------------------------------------------
Victor S. Sands......................................... 33,334 --
Deon Benson............................................. 8,333 --
Oles B. Drobocky........................................ 33,334 --
Lawrence Hutta.......................................... 16,667 --
Thomas Pickron.......................................... 25,000 --
J. Dalton Gerlach....................................... 50,000 --
Len Kessler............................................. 16,667 --
Raymond McLendon........................................ 8,333 --
------- ------
TOTAL......................................... 191,668 --
</TABLE>
- ---------------
(1) Assumes redemption of all Class A and Class B members' interests immediately
following the closing of the IPO. The exact number of shares of Common Stock
to be distributed to the Class B members will be determined by multiplying
the capital contribution of each Class B member by two and dividing the
product thereof by the market price per share of the Common Stock, except
with respect to Mr. Gerlach, a Class A and Class B member and an employee of
the Company, who, with respect to his Class B membership interest, will
receive such number of shares of Common Stock equal to three times his
capital contribution. All shares of Common Stock held by POV LLC after
redemption of the Class B members' interests will be distributed pro rata to
the Class A members in accordance with their membership interests. As
determined by POV LLC, Class B Common Stock received by POV LLC in the
Merger shall be distributed to the Class A members in the same proportion as
the Common Stock.
In connection with the redemption of all membership interests by POV LLC,
each Class B member of POV LLC, excluding Mr. Gerlach, will also receive a cash
payment equal to the amount of such Class B member's capital contribution plus a
dividend of six percent per annum from the date of such capital contribution.
36
<PAGE> 38
In January 1997, POV LLC loaned approximately $1.01 million to Premier, and
in connection with the Merger, the promissory note evidencing this debt
obligation (the "Premier Note") will become the obligation of OrthAlliance. POV
LLC will receive, out of proceeds of the IPO, an aggregate of approximately
$1.06 million, which includes repayment of the principal amount of the Premier
Note and accrued interest of approximately $50,000. In addition, Premier
succeeded to the obligations of POV LLC with regards to certain letter
agreements entered into with each of Messrs. Westover, Hayase and Gerlach which
provide that OrthAlliance, as the successor to Premier, must pay such persons
consulting fees of approximately $260,400, $156,280 and $165,000, respectively,
upon the closing of the IPO.
Simultaneously with and as a condition to the closing of the IPO,
OrthAlliance will close the Transfers pursuant to which it will acquire certain
operating assets of, or the stock of entities holding certain assets of, 55
separate Founding Practices in exchange for cash and shares of Common Stock and
enter into Management Agreements with the Founding Practices. Each of the
Founding Practices transactions was individually negotiated between the Company
and such Founding Practice with respect to all material terms, including without
limitation, valuation. One of the Company's directors and the Company's
President and Chief Executive Officer negotiated such agreements on the
Company's behalf. The aggregate consideration to be paid by OrthAlliance to the
Founding Practices is approximately $84.4 million, consisting of 5,882,985
shares of Common Stock and approximately $13.8 million in cash, all of which is
payable upon closing of the Transfers. The cash portion of the consideration
will be paid from proceeds received by the Company in the IPO. Drs. Bennett,
Durbin and Schmidt, all of whom are or will be directors of the Company, and Dr.
Pickron, a beneficial owner of more than 5% of the Common Stock following
completion of the Transfers, will receive 194,286, 93,486, 170,100 and 332,834
shares of Common Stock, respectively, and $582,857, $215,307, $107,432 and
$998,501 in cash, respectively, as a result of the Transfers. The consideration
that the Company has agreed to pay each of the Founding Practices of Drs.
Pickron, Durbin, Schmidt and Bennett was calculated in the same manner as the
consideration for each of the other Founding Practices.
The following table provides certain information concerning the
stockholders of the Founding Practices:
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED:
DEBT AND --------------------------------------
ASSETS TO BE LIABILITIES CASH VALUE OF NUMBER OF
FOUNDING PRACTICE: CONTRIBUTED(1) ASSUMED(1) DISTRIBUTION SHARES SHARES
- ------------------ -------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Sammy A. Caves, D.M.D. ........... $ 237,993 $ 34,352 $ 648,451 $ 2,593,805 216,150
Keith S. Crawford, D.M.D. ........ 8,938 68,847 0 859,442 71,620
Michael J. DeVito, D.D.S. ........ 218,518 7,513 100,000 730,366 60,864
Douglas D. Durbin, D.M.D.,
M.S.D. ......................... 272,302 16,107 280,403 1,121,612 93,468
John Huang, D.D.S. ............... 159,924 9,461 0 823,406 68,617
Daniel J. Enger, Jr., D.D.S. ..... 156,013 7,489 50,000 835,973 69,664
David Tod Garner, D.D.S. ......... 113,037 31,526 0 965,220 80,435
Suellen Rodeffer, D.D.S. ......... 113,037 31,526 0 965,220 80,435
Frederick A. Ghiz, D.D.S.,
M.S. ........................... 125,053 210,000 123,429 493,714 41,143
Paul J. Giorgetti, D.D.S. ........ 23,862 2,385 83,862 335,450 27,954
John Goode, D.D.S. ............... 47,231 112,570 215,825 863,299 71,942
Michael D. Goodwin, D.D.S.,
M.S. ........................... 203,705 208,421 119,852 479,407 39,951
Jack L. Green, Jr., D.D.S. ....... 84,632 83,567 0 1,260,673 105,056
William Griffin, D.D.S. .......... 127,226 11,234 195,647 782,587 65,216
Donald R. Halliburton, D.D.S. .... 85,214 11,627 340,555 1,362,219 113,518
John E. Horvath, D.D.S. .......... 92,508 43,284 196,286 785,142 65,429
Stuart Kimmel, D.D.S. ............ 60,386 7,902 215,300 861,195 71,766
Don E. Lahrman, D.D.S., M.S.D. ... 79,042 124,176 131,537 526,150 43,846
Causey C. Lee, D.D.S. ............ 227,024 28,440 180,593 722,373 60,198
Robert P. Lorentz, D.D.S.,
M.S. ........................... 88,663 27,622 230,031 920,124 76,677
George T. Mitchell, D.D.S. ....... 78,766 47,714 140,535 562,141 46,845
Winston C. Morris, D.M.D. ........ 123,211 95,937 177,912 711,650 59,304
R. O. Parsons, D.M.D., M.S.D. .... 675,443 13,630 633,223 2,532,891 211,074
Ben B. Pence, D.M.D. ............. 36,727 55,337 292,378 1,169,513 97,459
Ronald G. Philipp, D.M.D. ........ 18,231 47,356 77,306 695,751 57,979
R. N. Pickron, D.D.S. ............ 951,043 333,574 998,501 3,994,004 332,834
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED:
DEBT AND --------------------------------------
ASSETS TO BE LIABILITIES CASH VALUE OF NUMBER OF
FOUNDING PRACTICE: CONTRIBUTED(1) ASSUMED(1) DISTRIBUTION SHARES SHARES
- ------------------ -------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Greg A. Shoup, D.D.S. ............ $ 276,109 $ 96,844 $ 289,887 $ 1,102,702 91,892
Richard L. Rothstein, D.M.D. ..... 202,290 7,062 240,764 963,057 80,255
Victor S. Sands, D.D.S. .......... 72,670 0 595,128 2,380,512 198,376
Randall A. Schmidt, D.D.S. ....... 219,686 90,138 107,432 2,041,206 170,100
Thomas W. Surber, D.D.S. ......... 221,451 90,862 216,590 1,949,306 162,442
Gregory P. Scott, D.D.S. ......... 41,289 7,613 144,527 818,984 68,249
Arthur B. Silver, D.D.S. ......... 67,094 2,006 176,615 706,460 58,872
Gerald N. Smernoff, D.D.S. ....... 80,186 0 268,228 1,072,913 89,409
Douglas E. Smith, D.D.S. ......... 298,960 3,891 466,662 1,866,649 155,554
D. B. Snead, D.M.D. .............. 144,955 202,055 142,624 570,495 47,541
Gilbert H. Snow, D.D.S. .......... 94,273 17,512 624,200 2,496,799 208,067
Mark D. Thebaut, D.D.S. .......... 86,784 118,062 173,464 739,504 61,625
Stephen C. Trawick, D.D.S. ....... 72,604 28,811 0 1,178,687 98,224
Mark A. Yaffey, D.D.S. ........... 39,394 14,301 193,084 772,336 64,361
Paul Yurfest, D.D.S. ............. 241,479 9,253 243,909 975,638 81,303
Randall K. Bennett, D.D.S. ....... 32,860 223,888 582,857 2,331,429 194,286
Kenneth Brehnan, D.D.S. .......... 17,925 80,475 335,548 1,342,192 111,849
John W. Bryant, D.D.S. ........... 14,854 34,208 142,053 568,212 47,351
Raymond Fortson, D.D.S. .......... 98,633 166,548 0 1,535,638 127,970
Joseph W. Gray, D.D.S., M.S. ..... 86,095 237,509 359,061 1,315,511 109,626
Gregg G. Hipple, D.D.S., M.S. .... 128,006 101,795 0 2,301,200 191,767
Robert E. Hirschfield, D.D.S. .... 152,238 167,371 418,714 1,674,855 139,571
Joseph C. Jackson, Jr., D.D.S. ... 211,086 155,957 213,603 704,722 58,727
Malko Karkenny, D.D.S. ........... 9,350 4,727 155,922 623,687 51,974
Richard C. Hayes, D.D.S., M.S..... 9,350 4,727 155,922 623,687 51,974
Joel Martinez, D.D.S. ............ 363,626 45,538 326,347 1,305,389 108,782
B. C. McConnell, Jr., D.D.S. ..... 177,297 19,604 287,017 1,148,068 95,672
Raymond A. McLendon, D.D.S. ...... 62,306 14,971 0 484,098 40,342
Brian J. Nettleman, D.D.S. ....... 0 59,740 273,363 1,093,452 91,121
Robert C. Penny, D.D.S., M.S. .... 67,970 64,849 235,751 943,006 78,584
A. Paul Serrano, D.D.S. .......... 118,824 193,721 463,954 1,855,817 154,651
Lesley O. Starnes, D.D.S.,
M.S. ........................... 51,538 49,040 213,605 854,422 71,202
Keith J. Stewart, D.D.S. ......... 19,913 86,987 0 1,178,627 98,219
Cary A. Williams, D.M.D. ......... 4,828 107,130 280,809 1,123,237 93,603
---------- ---------- ----------- ----------- ---------
TOTAL................... $8,193,652 $4,178,792 $13,759,266 $70,595,824 5,882,985
========== ========== =========== =========== =========
</TABLE>
- ---------------
(1) Assets to be contributed reflect the historical book value of the assets of
each practice, including their patient receivable balance, as of June 30,
1997. Patient prepayments are included in debt and liabilities assumed. See
"Business -- Agreements with Allied Practices and Allied
Orthodontists -- Acquisition Agreements."
USOC entered into a consulting agreement with Newfound Capital Associates
("Newfound") and Newfound's President, Mr. Wilfong. OrthAlliance succeeds to the
rights and obligations of USOC under the consulting agreement through the
Merger. In addition, Mr. Wilfong entered into a separate consulting agreement
with OrthAlliance. Mr. Wilfong agreed to provide financial and general business
services to the Company, and the Company has agreed to pay Mr. Wilfong
consulting fees of $300,000 for such services, of which $250,000 is payable upon
completion of the IPO and will be paid from the proceeds received in the IPO.
The payment of this consulting fee is directly related to the services performed
by Mr. Wilfong in connection with the IPO. Pursuant to these consulting
agreements and in addition to the consulting fee, the Company granted Mr.
Wilfong a warrant to purchase 150,000 shares of Common Stock with an exercise
price per share equal to the IPO price. OrthAlliance will record compensation
expense related to this warrant. A warrant granted to Mr. Wilfong by
38
<PAGE> 40
USOC to purchase 168,750 shares of USOC's common stock will be converted in the
Merger to a warrant to purchase an equal number of shares of Common Stock at an
exercise price equal to the IPO price net of the underwriting discount ($11.16).
Both of these warrants are exercisable for a five-year term commencing on the
effective date of the IPO. Mr. Wilfong will continue to provide consulting
services to the Company until the earlier of (i) the termination of the
consulting agreements on September 30, 1997 or (ii) the occurrence of other
specified events set forth in the agreements. Pursuant to the terms of the stock
purchase warrants, Mr. Wilfong has certain incidental registration rights for
the registration of the shares of Common Stock underlying the warrants. See
"Description of Capital Stock -- Registration Rights."
USOC entered into a consulting agreement with Premier Management, Inc.
("PMI") and PMI's President, Robert D. Garces. The Company succeeds to the
rights and obligations of USOC under the consulting agreement through the
Merger. Under his consulting agreement, Mr. Garces has agreed to provide
financial and general business services to the Company, and the Company has
agreed to pay Mr. Garces a consulting fee of $100,000 for such services, payable
upon the closing of the IPO and will be paid from the proceeds received in the
IPO. The payment of this consulting fee is directly related to services
performed by Mr. Garces in connection with the IPO. In addition to the
consulting fee, USOC granted to Mr. Garces a warrant to purchase 56,250 shares
of Common Stock. OrthAlliance will record compensation expense related to this
warrant. In the Merger, such warrant shall be converted into a warrant of the
Company to purchase an equal number of shares of Common Stock with an exercise
price equal to the IPO price net of the underwriting discount ($11.16),
exercisable for a five-year term commencing on the effective date of the IPO.
Mr. Garces will continue to provide services until the earlier of the
termination of the consulting agreement on September 30, 1997 or the occurrence
of other specified events. Pursuant to the terms of the stock purchase warrant,
Mr. Garces has certain incidental registration rights for the registration of
the shares of Common Stock underlying the warrants. See "Description of Capital
Stock -- Registration Rights."
USOC entered into an employment agreement with Mr. Hethcox providing for
the payment of $18,000 per month and the issuance of options to purchase 50,000
shares of USOC's common stock. Pursuant to this agreement, Mr. Hethcox received
total payments of approximately $115,625. The option for 50,000 shares of USOC
common stock has been cancelled. The USOC employment agreement terminates on the
date of the Merger and at such time Mr. Hethcox's employment agreement with
OrthAlliance will be effective. In connection with his employment, OrthAlliance
granted to Mr. Hethcox a warrant to purchase 50,000 shares of Common Stock, with
an exercise price of $0.01 a share, exercisable for a five-year term commencing
on the effective date of the IPO. OrthAlliance will record compensation expense
related to this warrant. See Note 4 to Notes to Financial Statements of
OrthAlliance.
Certain of the Allied Orthodontists have received warrants to purchase an
aggregate of 90,000 shares of Common Stock with an exercise price per share
equal to the IPO price, exercisable for a five-year term commencing on the
effective date of the IPO for referring other Allied Orthodontists to the
Company. The Company will record compensation expense related to these warrants
in the second quarter of 1997. Warrants for the purchase of shares of Common
Stock will be granted to the following Allied Orthodontists: 31,600 to Dr.
Schmidt, 13,090 to Dr. Parsons, 5,833 to Dr. Griffin, 5,432 to Dr. Smith, 5,088
to Dr. Sands, 4,717 to Dr. Shoup, 3,312 to Dr. Garner, 3,306 to Dr. DeVito,
3,263 to Dr. Trawick, 3,052 to Dr. Scott, 3,005 to Dr. Crawford, 2,508 to Dr.
Lahrman, 1,747 to Dr. Snead, 1,332 to Dr. Lee, 1,021 to Dr. Goodwin and 1,694 to
Dr. Yaffey.
At the determination of the Company's executive officers, certain Allied
Orthodontists may be paid fees for: (i) preparing educational and seminar
materials for the Company, (ii) consulting with other Allied Orthodontists on
matters requested by management, (iii) identifying and performing due diligence
on additional orthodontic practices which may affiliate with the Company, and
(iv) other matters requested from time to time by management in the normal
course of operating the Company's business. It is not presently known by
management which Allied Orthodontists will be requested to perform such services
in the future and, therefore, management does not know the amount of fees or the
Allied Orthodontists to whom such fees may be paid.
Dr. Pickron received cash compensation from USOC in 1996 totalling $150,000
for serving as its Chief Executive Officer.
39
<PAGE> 41
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus regarding the beneficial ownership of the Common Stock and Class B
Common Stock (assuming completion of the Merger and the Transfers), and as
adjusted to reflect the consummation of the IPO, by (i) each person who is known
by the Company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of the Common Stock or Class B Common Stock, (ii) each
director and named executive officer of the Company and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
SHARES OF PERCENT OF COMMON STOCK CLASS B CLASS B
COMMON STOCK BENEFICIALLY OWNED COMMON STOCK COMMON STOCK
BENEFICIALLY --------------------------- BENEFICIALLY BENEFICIALLY
NAME OWNED(1) PRIOR TO IPO AFTER IPO OWNED OWNED
- ---- ------------ --------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Dr. Robert N. Pickron,
D.D.S.(2)..................... 974,256 12.8% 9.5% 91,632 36.7%
Jonathan E. Wilfong(3).......... 430,262 5.4 4.1 15,930 6.4
Dr. Randall K. Bennett.......... 298,396 3.9 2.9 24,000 9.6
Sam Westover(4)................. 205,814 2.7 2.0 33,000 13.2
Dr. Randall A. Schmidt, D.D.S.,
M.S.(5)....................... 223,012 2.9 2.2 3,043 1.2
Dr. Douglas D. Durbin, D.D.S.,
M.S........................... 100,902 1.3 1.0 1,062 *
Robert S. Chilton(6)............ 10,000 * * -- --
U. Bertram Ellis, Jr............ -- -- -- -- --
Paul H. Hayase(7)............... 35,704 * * 6,000 2.4
P. Craig Hethcox(8)............. 70,000 * * -- --
Craig L. McKnight............... -- -- -- -- --
W. Dennis Summers............... -- -- -- -- --
All directors and executive
officers as a group (11
persons)(9)................... 1,374,079 16.9 12.8 83,035 33.2
</TABLE>
- ---------------
* Less than one percent of the outstanding class of common stock.
(1) Unless otherwise indicated, each of the stockholders listed has sole voting
and investment power with respect to the shares of Common Stock or Class B
Common Stock beneficially owned by such stockholder. Shares of Common Stock
subject to options or warrants exercisable within 60 days are deemed
outstanding for computing the percentage of ownership of the holder. The
address of all persons listed, except Mr. Wilfong and Dr. Pickron, is 23848
Hawthorne Boulevard, Suite 200, Torrance, California 90505 unless otherwise
indicated.
(2) The business address of Dr. Pickron is 3294 Medlock Bridge Road, Building
A, Norcross, Georgia 30092. Includes an aggregate of 84,252 shares of
Common Stock and 12,036 shares of Class B Common Stock shares held in
separate trusts by a third party trustee for the benefit of each of Dr.
Pickron's children and a niece. Dr. Pickron disclaims beneficial ownership
of the 84,252 shares of Common Stock and 12,036 shares of Class B Common
Stock held in such trusts.
(3) The business address of Mr. Wilfong is 536 Manor Ridge Drive, N.W.,
Atlanta, Georgia 30305. Includes 318,750 shares of Common Stock subject to
the exercise of warrants.
(4) Includes options for the purchase of 60,000 shares of Common Stock pursuant
to the Employee Plan.
(5) Includes 2,468 shares of Common Stock and 353 shares of Class B Common
Stock held by a profit sharing plan for Dr. Schmidt's benefit. Includes
warrants for the purchase of 31,600 shares of Common Stock.
(6) Includes options for the purchase of 10,000 shares of Common Stock pursuant
to the Employee Plan.
(7) Includes options for the purchase of 15,000 shares of Common Stock pursuant
to the Employee Plan.
(8) Includes 70,000 shares of Common Stock subject to the exercise of a warrant
and options pursuant to the Employee Plan.
(9) Includes options and warrants for the purchase of 505,350 shares of the
Company's Common Stock. See separate footnotes set forth above.
40
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The following summary is based upon OrthAlliance's Certificate and Bylaws,
which are included as exhibits to the Registration Statement of which this
Prospectus forms a part. The following discussion is qualified in its entirety
by reference to such exhibits.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Pursuant to the Certificate, the Company has authority to issue 90,250,000
shares of capital stock, consisting of 70,000,000 shares of Common Stock, par
value $.001 per share, 250,000 shares of Class B Common Stock, par value $.001
per share, and the Board of Directors of the Company has authority (without
action by the stockholders) to issue 20,000,000 shares of preferred stock, par
value $.001 per share, in one or more classes or series and to determine the
voting rights, preferences as to dividends and in liquidation, and conversion
and other rights of each such series (the "Preferred Stock"). As of the
completion of the Merger and the Transfers, there will be 7,632,985 shares of
Common Stock and 250,000 shares of Class B Common Stock issued and outstanding.
The Company has no current plans to issue any shares of Preferred Stock.
The rights of the holders of Common Stock and Class B Common Stock
discussed below are subject to such rights as the Board of Directors may
hereafter confer on the holders of Preferred Stock; accordingly, rights
conferred on holders of Preferred Stock that may be issued in the future under
the Certificate may have a material adverse effect on the rights of holders of
Common Stock and Class B Common Stock.
COMMON STOCK AND CLASS B COMMON STOCK
The Common Stock and the Class B Common Stock and the rights, powers and
limitations thereof are identical, except as described below.
Voting Rights. Each holder of shares of Common Stock and Class B Common
Stock shall be entitled to attend all special and annual meetings of the
stockholders of the Company and, share-for-share and without regard to class,
together with the holders of all other classes of stock entitled to attend such
meetings, to cast one vote for each outstanding share of Common Stock or Class B
Common Stock so held upon any matter properly considered and acted upon by the
stockholders, voting together as a single class, except as otherwise required by
law.
Liquidation Rights. In the event of any dissolution, liquidation, or
winding up of the Company, whether voluntary or involuntary, the holders of the
Common Stock and holders of any class or series of stock entitled to participate
therewith as to the distribution of assets (including the Class B Common Stock),
shall be entitled to participate in the distribution of any assets of the
Company remaining after the Company shall have paid, or provided for payment of,
all debts and liabilities of the Company and after the Company shall have paid,
or set aside for payment, to the holders of any class of stock having preference
over the Common Stock and the Class B Common Stock in the event of dissolution,
liquidation or winding up, the full preferential amounts, if any, to which they
are entitled.
Dividends. Dividends may be paid on the Common Stock and the Class B
Common Stock and on any class or series of stock entitled to participate
therewith as to dividends, but only when and as declared by the Board of
Directors. Holders of Common Stock and Class B Common Stock will participate as
one class with respect to any dividends declared and paid on the Common Stock.
Other Rights. The Certificate does not give holders of Common Stock
preemptive or other subscription or conversion rights. Shares of Class B Common
Stock are subject to the conversion provisions described below. The shares of
Class B Common Stock are not transferable, except to a holder's spouse, parents,
siblings, lineal descendants, a trust for the benefit of any such persons or as
determined by will or the laws of descent.
Conversion Rights of Class B Common Stock. At any time following 180 days
after the effective date of the IPO, each share of Class B Common Stock shall
automatically convert into Common Stock (i) at the ratio of eight shares of
Common Stock for each share of Class B Common Stock upon the attainment of the
Conversion Prices or (ii) if not converted pursuant to subparagraph (i), on a
one-for-one basis upon the Final Conversion
41
<PAGE> 43
Date. The shares of Class B Common Stock convertible pursuant to subparagraph
(i) above will convert in five increments of up to 50,000 shares of Class B
Common Stock (20% of the total number of shares of Class B Common Stock issued)
upon the attainment of each of the five specified Conversion Prices. Upon each
such conversion, each holder of Class B Common Stock will be deemed to have
converted a pro rata share of such Class B Common Stock then outstanding. The
Conversion Prices shall be established at premiums to the IPO price, and will be
deemed to have been achieved at the end of the trading day on which the average
closing price of the Common Stock for the preceding 20 consecutive trading days
exceeds such Conversion Price. The closing prices will be those reported on the
Trading Market. The initial Conversion Price is equal to 150% of the IPO price,
and each of the subsequent Conversion Prices is equal to 120% of the preceding
Conversion Price. Therefore, the five Conversion Prices at which up to 50,000
shares of the outstanding Class B Common Stock shall be automatically converted
to Common Stock are $18.00, $21.60, $25.92, $31.10 and $37.32, respectively. If
any Conversion Prices are attained within 180 days after the effective date of
the IPO, the portion of shares of Class B Common Stock that would have otherwise
converted, shall automatically convert into Common Stock on the 181st day after
the effective date of the IPO. Upon each conversion, all fractional shares shall
be paid in cash based upon the 20 consecutive trading day average closing price.
In the event that there are any shares of Class B Common Stock outstanding on
the Final Conversion Date, all such shares shall automatically convert into an
equal number of shares of Common Stock. The holders of the Class B Common Stock
may convert each share of Class B Common Stock into one share of Common Stock at
any time after 180 days from the date of this Prospectus but prior to the Final
Conversion Date.
PREFERRED STOCK
The Certificate authorizes the Board of Directors, from time to time and
without any stockholder action or approval, to provide for the issuance of up to
20,000,000 shares of Preferred Stock, in one or more series, and to fix the
relative rights and preferences of the shares, including voting powers, dividend
rights, liquidation preferences, redemption rights and conversion privileges. As
of the date hereof, the Board of Directors has not provided for the issuance of
any series of such Preferred Stock, and there are no agreements or
understandings for the issuance of any such Preferred Stock. Because of its
broad discretion with respect to the creation and issuance of Preferred Stock
without stockholder approval, the Board of Directors could adversely affect the
voting power of the holders of Common Stock and Class B Common Stock and, by
issuing shares of Preferred Stock with certain voting, conversion and/or
redemption rights, could discourage any attempt to obtain control of the
Company.
WARRANTS
Warrants for the purchase of 593,622 shares of Common Stock have been
issued and are outstanding or will be issued pursuant to the Merger. The
exercise price per share pursuant to each of the warrants is equal to (i) the
IPO price, (ii) the IPO price net of underwriting discount, (iii) the higher of
the initial public offering price or the closing bid price on the first trading
day, or (iv) $0.01 per share. For a more detailed discussion of such warrants,
see "Certain Transactions" and "Underwriting."
REGISTRATION RIGHTS
The Founding Practices have contracted to receive shares of Common Stock
upon the closing of the Transfers pursuant to the terms and conditions of the
acquisition agreements between OrthAlliance and each Founding Practice. Such
agreements set forth certain incidental registration rights for the Founding
Practices, whereby the Company is obligated to use reasonable efforts to
register shares issued as consideration to a Founding Practice if the Company
initiates a public offering and files a registration statement in connection
therewith anytime within 24 months of the closing of the acquisition of the
operating assets or capital stock of the Founding Practice; provided, however,
that such registration rights are subject to any terms, conditions or
limitations required by any underwriter retained by the Company in connection
with such underwritten public offering, and such registration rights may not be
exercised in connection with a registration statement filed by the Company in
connection with the registration of shares issued pursuant to (i) an employee
stock purchase or option plan or (ii) any acquisition or proposed acquisition by
the Company. Each Founding Practice shall bear its
42
<PAGE> 44
proportionate share of underwriters' commissions and discounts, and shall bear
the costs and fees of attorneys and accountants it retains.
The holders of shares of Common Stock issued upon the exercise of the
warrants issued to Mr. Wilfong, Mr. Garces and J. C. Bradford & Co. have
associated incidental registration rights pursuant to which the Company is
obligated to use reasonable efforts to register such shares if the Company
initiates a public offering and files a registration statement in connection
therewith after the date of this Prospectus, excluding the registration of
shares issued pursuant to (i) an employee stock purchase or option plan or (ii)
any acquisition or proposed acquisition by the Company. The fees and costs of
any registration of the Common Stock issued pursuant to the warrants will be
borne by the Company. In addition, the registration rights associated with the
warrant held by J.C. Bradford & Co. provides that J.C. Bradford & Co. will have
priority over the other holders of incidental registration rights so that not
less than fifty percent of the shares registered pursuant to the exercise of
incidental registration rights by holders of the Company's Common Stock shall be
shares registered by J.C. Bradford & Co., up to all of such shares held.
CERTAIN PROVISIONS OF THE CERTIFICATE, BYLAWS AND DELAWARE LAW
Classification of Board of Directors. The Certificate and the Bylaws of
the Company divide the Board of Directors into three classes, designated Class
I, Class II and Class III, respectively, each class to be as nearly equal in
number as possible. The terms of Class I, Class II and Class III directors will
expire at the 1998, 1999 and 2000 annual meetings of stockholders, respectively,
and in all cases directors elected will serve until their respective successors
are elected and qualified. At each annual meeting of stockholders, directors
will be elected to succeed those in the class whose terms then expire, with each
director so elected to serve for a term expiring at the third succeeding annual
meeting of stockholders after such director's election, and until the director's
successor is elected and qualified. Thus, directors elected stand for election
only once in three years.
Additional Directorships, Vacancies and Removal of Directors. The Bylaws
of the Company provide that the Board of Directors shall consist of up to nine
members. The Certificate and the Bylaws authorize the Board of Directors to
create additional directorships and abolish any vacant directorships.
Newly-created directorships and vacancies may be filled by a majority of
directors then in office to hold office until the next annual meeting of
stockholders, and until their successors shall be elected and qualified. In
addition, in accordance with the DGCL provisions pertaining to a company whose
Board of Directors is classified, the Company's Certificate and Bylaws provide
that directors may be removed only for cause by vote of the holders of a
majority of the shares entitled to vote at an election of directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws require an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors or the Nominating
Committee thereof, of candidates for election as directors (the "Nomination
Procedure"), as well as for other stockholder proposals to be considered at
annual stockholders' meetings. Notice to the Company from a stockholder who
proposes to nominate a person at a meeting for election as a director generally
must be given not less than 120 nor more than 150 days prior to the anniversary
of the date notice of the annual meeting of stockholders was given in the
preceding year and must contain: (i) the name and record address of the
stockholder who intends to make the nomination; (ii) the name, age and residence
address of the nominee; (iii) the principal occupation or employment of the
nominee; (iv) the class, series and number of shares held of record,
beneficially and by proxy, by the stockholder and the nominee as of the record
date of such meeting (if such record date is publicly available) and as of the
date of such notice; and (v) such other information relating to the nominee
proposed by such stockholder as is required to be included if the Company is
then subject to Regulation 14A under the Securities Exchange Act of 1934,
including the written consent of each nominee to be named in the proxy statement
and to serve as a director of the Company if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the Nomination Procedure. Similar advance notice must be
given of any other proposed business which a stockholder proposes to bring
before an annual meeting of stockholders. Such notice must contain (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class, series and
number of shares of the Company's stock which are held of record, beneficially
and by proxy by the stockholder as of the record date of
43
<PAGE> 45
such meeting (if such record date is publicly available) and as of the date of
such notice, (iv) a description of all arrangements or understandings between
the stockholder and any other person or persons (naming such person or persons)
in connection with the proposing of such business by the stockholder, and (v)
any material interest of the stockholder in such business. The purpose of
requiring advance notice is to afford the Board of Directors an opportunity to
consider the qualifications of the proposed nominees or the merits of other
stockholder proposals and, to the extent deemed necessary or desirable by the
Board of Directors, to inform stockholders about those matters. Although the
advance notice provisions do not give the Board of Directors any power to
approve or disapprove of stockholder nominations or proposals for action by the
Company, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the procedures
established by the Bylaws are not followed and the effect of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposals, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to the Company and its stockholders.
Statutory Business Combination Provision. Section 203 of the DGCL prevents
an "interested stockholder" (defined in Section 203, generally, as a person
owning 15% or more of a corporation's outstanding voting stock) from engaging in
a "business combination" (as defined in Section 203) with a publicly-held
Delaware corporation for three years following the date such person became an
interested stockholder unless (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination; (ii) upon consummation of the transaction that
resulted in the interested stockholder's becoming an interested stockholder, the
interested stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder.
Anti-takeover Effects. The foregoing provisions of the Certificate and
Bylaws and DGCL could discourage potential acquisition proposals and could delay
or prevent a change in control of the Company. These provisions are intended to
enhance the continuity and stability of the Board of Directors and the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change in control of the
Company. These provisions are also designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal and to discourage certain tactics
that may be used in proxy fights. However, such provisions may discourage third
parties from making tender offers for the Company's shares. As a result, the
market price of the Common Stock may not benefit from any premium that might
occur in anticipation of a potential or actual change in control. Such
provisions also may have the effect of preventing changes in the management of
the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is NorWest Shareowner
Services.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the IPO, there was no public market for securities of the Company.
No prediction can be made as to the effect, if any, that market sales of shares
of Common Stock or the availability of shares of Common Stock for sale will have
on the market price prevailing from time to time. Sales of substantial amounts
of Common Stock of the Company in the public market after the restrictions
described below lapse could adversely affect the prevailing market price and the
ability of the Company to raise equity capital in the future.
Upon completion of the IPO, the Company will have 10,232,985 shares of
Common Stock and 250,000 shares of Class B Common Stock outstanding. Of these
shares, the 2,600,000 shares of Common Stock (2,990,000 shares if the
Underwriters' over-allotment option is exercised in full) sold in the IPO will
be freely
44
<PAGE> 46
tradeable without restriction or limitation under the Securities Act, except for
shares purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act (which may generally be sold only in compliance
with Rule 144).
The shares of Common Stock issuable pursuant to this Offering (up to
2,500,000 shares) will be freely tradable after their issuance by persons not
affiliated with the Company, unless the Company contractually restricts their
sale. The Company anticipates that the agreements entered into in connection
with its Future Transfers will restrict the resale of all or a portion of the
shares issued in those transactions for varying periods of time. Initially the
shares issued pursuant to this Offering will be subject to a lock-up period of
180 days after the date of the prospectus related to the IPO.
The Founding Practices contracted to receive 5,882,985 shares of Common
Stock upon the closing of the Transfers in consideration for certain assets of
the Founding Practices and entering into Management Agreements. Such shares have
incidental registration rights pursuant to the purchase and sale agreements
between the Founding Practices and OrthAlliance, whereby the Company is
obligated to use reasonable efforts to register shares issued as consideration
to a Founding Practice if the Company undertakes a public offering and files a
registration statement in connection therewith any time within 24 months of the
closing of the acquisition of the operating assets of the Founding Practice;
provided, however, that such registration rights are subject to any terms,
conditions and limitations required by any underwriter retained by the Company
in connection with such underwritten public offering, and such registration
rights may not be exercised in connection with registration statements filed by
the Company in connection with the registration of shares issued pursuant to (i)
employee stock purchase or option plans or (ii) any acquisition or proposed
acquisition by the Company.
The shares of Common Stock received by the Founding Practices, the
remaining 1,750,000 issued and outstanding shares of Common Stock and the
250,000 issued and outstanding shares of Class B Common Stock are deemed
"restricted shares" under Rule 144 since they were originally issued and sold by
the Company in private transactions in reliance upon exemptions from the
registration provisions of the Securities Act. The holders of restricted shares
will not be eligible to sell such shares pursuant to Rule 144 until the
expiration of one year from the date such restricted shares were acquired.
Additional restrictions on transferability apply to shares of Class B Common
Stock. See "Description of Capital Stock -- Common Stock."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates, whose
restricted shares have been fully paid for and held for at least one year from
the date of issuance by the Company may sell such securities in brokers'
transactions or directly to market makers, provided the number of shares sold in
any three-month period does not exceed the greater of 1% of the then outstanding
shares of Common Stock (102,329 shares based on the number of shares to be
outstanding after the IPO) or the average weekly trading volume of the Common
Stock in the public market during the four calendar weeks preceding the filing
of the seller's Form 144. Sales under Rule 144 are also subject to the
availability of current public information concerning the Company. After two
years have elapsed from the date of issuance of restricted shares by the
Company, such shares generally may be sold without limitation by persons who
have not been affiliates of the Company for at least three months. Rule 144 also
provides that affiliates who are selling restricted shares for which they have
fully paid must nonetheless comply with the above restrictions applicable to
restricted shares, notwithstanding the holding period.
All of the Founding Practices and the Company's officers, directors and
five percent (5%) or greater stockholders have entered into lock-up agreements
(the "Lock-up Agreements") generally providing that for a period of 365 days
after the Effective Date, they will not, except for the exercise of stock
options pursuant to the Stock Plans, directly or indirectly, offer, sell, loan,
pledge or otherwise dispose of, or grant any options or other rights with
respect to, any shares of Common Stock or any securities that are convertible
into or exchangeable or exercisable for Common Stock owned by them without the
prior written consent of J.C. Bradford & Co. Similarly, the Company has agreed
generally that, for a period of 365 days after the Effective Date, it will not,
directly or indirectly, issue, offer, sell, grant options to purchase or
otherwise dispose of any of its equity securities or any other securities
convertible into or exchangeable or exercisable for its Common Stock or any
other equity security, except that the Company may grant stock options under the
Stock Plans and issue shares of Common Stock upon the exercise of options
previously granted.
45
<PAGE> 47
In addition to the restricted shares outstanding upon completion of the IPO
and the Transfers, all of the approximately 95,000 shares of Common Stock which
may be acquired upon the exercise of vested stock options within 365 days
following the date of the prospectus related to the IPO (collectively, the
"Option Shares") are subject to the Lock-up Agreements but may be eligible for
resale following the expiration of the Lock-up Agreements (subject, in the case
of affiliates, to certain limitations) pursuant to Rule 701 under the Securities
Act or a Form S-8 registration statement to be filed by the Company under the
Securities Act. See "Management -- Stock Plans." In addition, all of the
approximately 593,622 shares of Common Stock that may be acquired upon the
exercise of warrants (including the Bradford Warrant) will be deemed restricted
securities and may be eligible for resale pursuant to Rule 144. Shares issuable
upon the exercise of such warrants have associated incidental registration
rights pursuant to which the Company is obligated to use reasonable efforts to
register such shares if the Company undertakes an underwritten public offering
and files a registration statement in connection therewith after the date of the
prospectus related to the IPO, excluding the registration of shares issued
pursuant to (i) an employee stock purchase or option plan or (ii) any
acquisition or proposed acquisition by the Company.
The Company intends to file a registration statement on Form S-8 to
register all shares of Common Stock issuable under the Company's stock option
plans, as soon as practicable after the date of the prospectus related to the
IPO, and the Company's Form S-8 is expected to become effective immediately upon
filing. Shares covered by such registration statement will be eligible for sale
in the public market after the effective date of such registration statement and
following the expiration of the Lock-up Agreements, subject to Rule 144
limitations applicable to affiliates of the Company. See "Management -- Stock
Plans."
PLAN OF DISTRIBUTION
THE COMPANY
This Prospectus covers the offer and sale of up to 2,500,000 shares of
Common Stock, which the Company may issue from time to time in connection with
the future acquisitions of certain operating assets of, or the stock of entities
holding certain operating assets of, orthodontic practices in accordance with
Rule 415(a)(1)(viii) of Regulation C under the Securities Act or as otherwise
permitted under the Securities Act.
The Company expects that the terms upon which it may issue the shares of
Common Stock in connection with Future Transfers will be determined through
negotiations with the owners of the orthodontic practices whose stock or assets
are to be acquired. The Company expects that the shares that are issued in
connection with Future Transfers will be valued at prices reasonably related to
market prices for the Common Stock prevailing either at the time an acquisition
agreement is executed or at the time a Future Transfer is consummated.
GENERAL
All expenses of this Offering will be paid by the Company. No underwriting
discounts or commissions will be paid in connection with the issuance of shares
of Common Stock by the Company in business combination transactions, although
finder's fees may be paid with respect to specific acquisitions. Any person
receiving a finder's fee may be deemed to be an Underwriter within the meaning
of the Securities Act.
The shares of Common Stock offered hereunder have been approved for listing
on the Nasdaq National Market, but such shares may be subject to certain
contractual holding period restrictions as described above.
46
<PAGE> 48
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
stock are being passed upon for the Company by Nelson Mullins Riley &
Scarborough, L.L.P., Atlanta, Georgia, special securities counsel to the
Company.
EXPERTS
The financial statements of Premier Orthodontic Group, Inc., US Orthodontic
Care, Inc. and OrthAlliance, Inc. as of December 31, 1996 included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement, on Form
S-4 (together with all exhibits, schedules and amendments relating thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which is a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is hereby made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements contained in this Prospectus concerning the provisions or contents of
any contract, agreement or any other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved, and each
statement shall be deemed qualified in its entirety by such reference to the
copy of the applicable document filed with the Commission. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
Registration Statement and the exhibits and schedules thereto can be obtained
from the Public Reference Section of the Commission upon payment of prescribed
fees. The Registration Statement, including the exhibits and schedules thereto,
is also available on the Commission's Web site at http://www.sec.gov. The Common
Stock is approved for listing on the Nasdaq National Market. Periodic reports,
proxy material and other information concerning the Company, when filed, may be
inspected at the offices of the Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by the Company's independent public
accountants.
47
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OrthAlliance, Inc.
Report of Independent Public Accountants.................. F-2
Balance Sheets as of December 31, 1996 and June 30, 1997
(Unaudited)............................................ F-3
Statements of Operations For the Period From Inception
(October 21, 1996) to December 31, 1996 and for the Six
Months Ended June 30, 1997 (Unaudited)................. F-4
Statements of Stockholder's Deficit For the Period From
Inception (October 21, 1996) to June 30, 1997 and for
the Six Months Ended June 30, 1997..................... F-5
Statements of Cash Flows For the Period From Inception
(October 21, 1996) to December 31, 1996 and for the Six
Months Ended June 30, 1997 (Unaudited)................. F-6
Notes to Financial Statements............................. F-7
US Orthodontic Care, Inc.
Report of Independent Public Accountants.................. F-17
Balance Sheets as of December 31, 1996 and June 30, 1997
(Unaudited)............................................ F-18
Statements of Operations For the Period From Inception
(February 7, 1996) to December 31, 1996 and for the Six
Months Ended June 30, 1996 and 1997 (Unaudited)........ F-19
Statements of Shareholders' (Deficit) Equity For the
Period From Inception (February 7, 1996) to June 30,
1996 and for the Six Months Ended June 30, 1997........ F-20
Statements of Cash Flows For the Period From Inception
(February 7, 1996) to December 31, 1996 and for the Six
Months Ended June 30, 1996 and 1997 (Unaudited)........ F-21
Notes to Financial Statements............................. F-22
Premier Orthodontic Group, Inc.
Report of Independent Public Accountants.................. F-26
Balance Sheets as of December 31, 1996 and June 30, 1997
(Unaudited)............................................ F-27
Statements of Operations For the Period From Inception
(November 26, 1996) to December 31, 1996 and for the
Six Months Ended June 30, 1997 (Unaudited)............. F-28
Statements of Changes in Owners'/Stockholders' Deficit For
the Period From Inception (November 26, 1996) to June
30, 1997 and for the Six Months Ended June 30, 1997.... F-29
Statements of Cash Flows For the Period From Inception
(November 26, 1996) to December 31, 1996 and for the
Six Months Ended June 30, 1997 (Unaudited)............. F-30
Notes to Financial Statements............................. F-31
Unaudited Pro Forma Combined Balance Sheet.................. F-34
Unaudited Pro Forma Combined Balance Sheet as of June 30,
1997................................................... F-35
Notes to Unaudited Pro Forma Combined Balance Sheet....... F-36
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OrthAlliance, Inc.:
We have audited the accompanying balance sheet of ORTHALLIANCE, INC. (a
development-stage enterprise, a Delaware corporation, and formerly Premier
Orthodontic Holdings, Inc.) as of December 31, 1996 and the related statements
of operations, stockholder's equity, and cash flow for the period from inception
(October 21, 1996) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of OrthAlliance, Inc. as of
December 31, 1996 and its operations from inception (October 21, 1996) to
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 2, 1997
(except with respect
to the matter discussed
in the last paragraph
of Note 1 as to which the
date is July 25, 1997)
F-2
<PAGE> 51
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS...................................................... $0 $ 0
== =======
ACCRUED CONSULTING FEES..................................... $0 $ 900
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, .001 par value; 3,000 shares authorized and
1 share issued and outstanding at December 31, 1996 and
June 30, 1997.......................................... 0 0
Additional paid-in capital................................ 0 0
Warrants.................................................. 0 3,190
Deficit accumulated during the development stage.......... 0 (4,090)
-- -------
Total stockholders' deficit....................... 0 (900)
-- -------
Total liabilities and stockholder's deficit....... $0 $ 0
== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 52
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION FOR THE SIX
(OCTOBER 21, MONTHS
1996) TO ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUE..................................................... $ -- $ --
EXPENSE:
Compensation expense...................................... -- (4,090)
------- -------
NET LOSS.......................................... $ -- $(4,090)
======= =======
Net loss per share.......................................... $ -- $ .39
======= =======
Number of shares used in net loss per share calculation..... -- 10,533
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 53
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDER'S DEFICIT
FOR THE PERIOD FROM INCEPTION (OCTOBER 21, 1996) TO JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFICIT
ADDITIONAL ACCUMULATED TOTAL
COMMON PAID-IN DURING DEVELOPMENT STOCKHOLDER'S
STOCK CAPITAL WARRANTS STAGE EQUITY
------ ---------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
INITIAL INVESTED CAPITAL (OCTOBER 21,
1996)............................... $0 $0 $ 0 $ 0 $ 0
Subscription receivable............. 0 0 0 0 0
-- -- ------ -------- ------
STOCKHOLDER'S DEFICIT AT DECEMBER 31,
1996................................ 0 0 0 0 0
Issuance of warrants.................. 0 0 3,190 0 3,190
Net loss.............................. 0 0 0 (4,090) (4,090)
-- -- ------ -------- ------
STOCKHOLDER'S DEFICIT AT JUNE 30,
1997................................ $0 $0 $3,190 $(4,090) $ (900)
== == ====== ======== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 54
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION FOR THE SIX
(OCTOBER 21, MONTHS
1996) TO ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.................................................... $ -- $(4,090)
Adjustments to reconcile net loss to net cash used in
operating activities:
Change in assets and liabilities:
Accrued consulting fees................................ -- 900
------- -------
Net cash used in operating activities............. -- (3,190)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of warrants...................................... -- 3,190
------- -------
NET CHANGE IN CASH
CASH, beginning of period................................... -- --
------- -------
CASH, end of period......................................... $ -- $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 55
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS
UNAUDITED)
1. BUSINESS AND ORGANIZATION
OrthAlliance, Inc. (the "Company" or "OrthAlliance") (formerly known as
Premier Orthodontic Holdings, Inc.) was formed to create a provider of practice
management services to orthodontic practices in the United States. As a result
of a planned merger of US Orthodontic Care, Inc. ("USOC") and Premier
Orthodontic Group, Inc. ("Premier") with and into the Company (the "Merger"),
the Company will succeed to the rights of USOC and Premier in connection with
management or consulting services agreements and with respect to the purchase
and sale agreements or agreements and plans of reorganization that USOC and
Premier has with certain orthodontic practices (the "Founding Practices") and
the related long term management services agreements. As a result, the Company
has entered into definitive agreements in which the Founding Practices will
transfer certain operating assets of, and certain liabilities of, or the stock
of an entity holding certain operating assets and certain liabilities of the
Founding Practices (the "Transfers"). The Transfers will occur prior to the
closing of the initial public offering (the "IPO").
The Company has had no operations to date, and the financial statements
have been prepared on the basis that the proposed transaction will occur,
although no assurance can be made that the proposed transaction will be
completed or that the Company will be successful in completing planned future
acquisitions. The Company intends to expand through the acquisition of
management rights to practices throughout the United States. In order to expand,
the Company will need further acquisition financing in the form of debt or
equity financing. There can be no assurance that such financing will be
available.
As of December 31, 1996, the Company received $.01 for the one share of
stock issued in 1996. This amount has been recorded as a subscription receivable
in the accompanying statement of stockholder's equity. The stock of the Company
is owned by a stockholder of Premier.
THE MERGER
OrthAlliance was created as a shell corporation to become active in
connection with the IPO. Prior to the Merger, the sole stockholder of
OrthAlliance holds a minority interest in Premier. There are two common
stockholders who owned common stock in USOC and Premier, and there are no common
stockholders between USOC and OrthAlliance. The stockholders in USOC and Premier
are considered promoters; therefore, the Merger will be accounted for pursuant
to Staff Accounting Bulletin No. 48, "Transfers of NonMonetary Assets By
Promoters and Shareholders," ("SAB No. 48") as will the transfers with the
orthodontic practices. This transfer will result in carryover basis of the
assets and liabilities of USOC and Premier. The assets acquired in the Merger by
OrthAlliance generally include cash, other current assets, equipment, other
assets, and contract rights. The liabilities to be received include accounts
payable, accrued liabilities, and notes payable. The historical cost basis will
be the carrying value on Premier's and USOC's respective balance sheet at the
date of transfer, except contract rights which have an historical cost basis of
zero. The contract rights become effective if and when the Offering is
effective. USOC and Premier have incurred certain issuance and organizational
expenses, the benefits of which will be transferred to the Company.
In the Merger, the outstanding common stock of USOC and Premier will be
converted into an aggregate of 1,750,000 shares of Class A Common Stock ("Common
Stock") and 250,000 shares of Class B Common Stock ("Class B Common Stock") of
the Company. Each share of USOC common stock will convert into .496 shares of
Common Stock and .071 shares of Class B Common Stock. The 100 shares of Premier
common stock will convert into 525,000 shares of Common Stock and 75,000 shares
of Class B Common Stock. The USOC and Premier stockholders, respectively, will
receive an aggregate of 1,225,000 and 525,000 shares of Common Stock and 175,000
and 75,000 shares of Class B Common Stock, respectively.
F-7
<PAGE> 56
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Premier is owned by certain individuals and Premier Orthodontic Ventures,
LLC ("POV LLC"). POV LLC has two classes of membership interests, Class A and
Class B. Immediately following completion of the IPO, POV LLC intends to redeem
all of its membership interests. The redemption provisions require that POV LLC
distribute shares of Common Stock with a market value equal to two times the
Class B members' capital contribution, except with respect to one Class B member
who shall receive shares of Common Stock with a value equal to three times his
Class B capital contribution. The exact number of shares of Common Stock to be
distributed to the Class B members will be determined by multiplying the capital
contribution by two (or three with respect to one Class B member) and dividing
the product thereof by the market price per share of the Common Stock. As a
result, the exact number of shares distributed to the Class B members will vary
according to the initial public offering price. All shares of Common Stock held
by POV LLC after redemption of the Class B members' interest will be distributed
pro rata to the Class A members in accordance with their membership interests.
All of the Class B Common Stock received by POV LLC in the Merger shall be
distributed pro rata to the Class A members.
USOC has warrants for the purchase of 225,000 shares of common stock
outstanding prior to the Merger. Assuming the warrants are not converted prior
to the Merger, the warrants are convertible into warrants of OrthAlliance with
the right to acquire an equal number of shares of Common Stock. USOC has
recorded compensation expense related to certain of these options and warrants
at the date of grant. OrthAlliance will record additional compensation expense
of $2,475,000 (unaudited) related to these warrants in the third quarter of 1997
upon successful completion of the IPO. The compensation expense is based on the
estimated fair value of $11.00.
THE TRANSFERS
In the Transfers, OrthAlliance will acquire certain operating assets or the
stock of entities holding certain operating assets of the 55 separate Founding
Practices in exchange for cash and shares of Common Stock and will enter into
long-term management services agreements with each practice. The Founding
Practices will receive 5,882,985 shares of Common Stock and $13,759,000 in cash.
Each Founding Practice transaction was individually negotiated between the
Company and the Founding Practice as to all material terms, including, but not
limited to, valuation. Of the total consideration for each transaction, the
Founding Practice could elect to receive up to 20% in cash and the balance in
shares of Common Stock. The actual number of shares shall be calculated by
subtracting the cash portion from the total consideration and dividing such
amount by the initial public offering price. The Transfers are part of the SAB
48 transaction described above. The assets and liabilities of the Founding
Practices will carryover at their historical costs to OrthAlliance. The assets
to be transferred include billed and unbilled receivables, supplies inventory,
other receivables, prepaid expenses, net equipment and certain other current and
non-current assets. The liabilities to be transferred include long-term debt,
patient prepayments and certain miscellaneous accruals. The cash paid to the
Founding Practices will be recorded as a dividend by the Company. A limited
amount of personal assets will be retained by Founding Practices.
In Transfers requiring stock acquisitions, the Company generally will
acquire the stock of the entity (the "Original Entity") through which the
applicable Founding Practice previously operated and generated revenues. Before
the Company's acquisition of the Original Entity, the stockholder(s) of the
Original Entity will form a new entity (the "New Entity") through which the
Founding Practice will provide orthodontic services and which will hold all
assets that the Company is unable to own pursuant to applicable state law or
which the Company does not intend to acquire from the Founding Practice. At the
time of transfer of the stock of the Original Entity to OrthAlliance, the
Original Entity will hold the operating assets of the Original Entity that the
Company is permitted to own. Since the Original Entity and the New Entity are
under common control and owned by the same stockholders, there is no step-up in
basis of the assets for accounting purposes. Each Stockholder of the Founding
Practices and each stockholder of the Original Entity is a promoter under SAB
No. 48.
F-8
<PAGE> 57
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
POST MERGER AND TRANSFERS
Following is a table of the anticipated ownership by group related to each
class of the Company's shares of common stock after the Merger, the Transfers
and the Offering:
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
Founding practice owners................................ 57.5% --%
USOC stockholders....................................... 12.0 70.0
Premier stockholders.................................... 5.1 30.0
The public stockholders................................. 25.4 --
----- -----
100.0% 100.0%
===== =====
</TABLE>
See also Note 5 for further discussion of post Merger and post Transfers
transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from managing the practices will be recognized on a monthly basis
as the services are provided. The revenue of OrthAlliance will consist of the
sum of the management fees and such amounts equal to the operating expenses of
the orthodontic practice assumed by OrthAlliance under such management
agreements. In general, the management agreements provide for the payment of
fees to the Company based on a negotiated percentage of the "Adjusted Patient
Revenue" of the orthodontic practice. Adjusted Patient Revenue is net patient
revenue, as determined under generally accepted accounting principles, including
adjustments for contractual allowances and other discounts, plus an adjustment
for uncollectible accounts. Patient revenue is recognized as orthodontic
services are performed, with approximately 20% being recognized at the time of
initial treatment. The balance of the contract revenue is realized evenly over
the remaining treatment period. The 20% estimated revenue at the initial
treatment date is based on the estimated costs incurred by the practice at that
time as compared to the total costs of providing the contracted services and is
consistent with industry standards. The percentage includes the estimated costs
of diagnosis and treatment plan development, initial treatment by orthodontic
personnel, orthodontic supplies, and associated administrative services.
Expenses not required to be paid by OrthAlliance pursuant to the agreements
primarily consist of professional expenses of the orthodontist. See Note 5.
INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statements as of and for the six months ended June 30, 1997
are unaudited; however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the unaudited financial statements for this interim period have
been included. The results of interim periods are not necessarily indicative of
the results to be obtained for a full year.
ACCOUNTING PRONOUNCEMENTS
The Company anticipates that the Emerging Issues Task Force of the
Financial Accounting Standards Board will be evaluating certain matters relating
to the physician/orthodontic practice management industry such as the ability to
consolidate the revenues of a physician/orthodontic practice through a
contractual management agreement, mergers between physician/orthodontic
practices and management entities and merger transactions that qualify for
pooling-of-interest treatment. The Company expects this evaluation will include
a review of accounting for business combinations. The Company is unable to
predict the impact, if any, that this review may
F-9
<PAGE> 58
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
have on the Company's acquisition strategy, allocation of purchase price related
to acquisitions, and amortization life assigned to intangible assets.
3. COMMITMENTS AND CONTINGENCIES
The Company will be subject to certain government regulation at the federal
and state levels. In compliance with certain regulatory requirements, the
Company will not control the practice of orthodontics. There can be no assurance
that the legality of any long-term management services agreements that will be
entered into will not be successfully challenged. There also can be no assurance
that the laws and regulations of states in which the Company will maintain
operations will not change or be interpreted in the future to restrict or
further restrict the Company's relationships with orthodontists.
Orthodontists may be subject to legal liability suits while under
management or consulting services agreements with the Company. The Company will
not control or employ the orthodontists; however, the Company intends to acquire
certain liability insurance for itself.
The Company has granted warrants to purchase shares of Common Stock to J.C.
Bradford & Co., as part of the Offering. The warrant is for the purchase of
78,622 shares of Common Stock at an exercise price equal to the higher of (i)
the initial public offering price or (ii) the closing bid price the first
trading day after the date of the Offering. Additionally, the Company has agreed
to pay an aggregate of approximately $900,000 to Jonathan E. Wilfong, Robert D.
Garces, Sam Westover, Paul H. Hayase, and J. Dalton Gerlach upon successful
completion of the Offering. The services have been performed by these
consultants in connection with the Merger, the Transfers and the successful
filing of the registration statement related to the IPO which were performed
during the second quarter of 1997. The Company recorded compensation expense of
$900,000 regarding these services in the second quarter of 1997.
4. STOCK OPTIONS AND WARRANTS
The Company accounts for the issuance of options and warrants to employees
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Options and warrants issued to
employees at an exercise price at or above fair value at the date of grant would
require no compensation expense to be recorded under APB No. 25. Options and
warrants issued to nonemployees will be accounted for under Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123"). Options and warrants issued to nonemployees will require
compensation expense to be recorded for the fair value of the equity instrument
granted. The Company will provide the pro forma disclosure of net income and
earnings per share in the notes to the financial statements as if the fair
value-based method of accounting had been applied to awards as required by SFAS
No. 123.
On January 1, 1997, USOC granted an option to an officer of USOC (who will
become an officer of the Company upon consummation of the Transfers) for the
purchase of 50,000 shares of common stock at an exercise price of $.01 per
share. USOC recorded compensation expense (based upon a fair market value of
$5.00 established by USOC's unrelated third party equity sales) related to such
option of $250,000 in the first quarter of fiscal 1997. On June 10, 1997, the
option was cancelled and an OrthAlliance warrant was issued for the purchase of
50,000 shares of Common Stock with an exercise price per share of $0.01. The
cancellation of the option and the issuance of the warrant created a new
measurement date. OrthAlliance recorded compensation expense of $550,000
(unaudited) in the second quarter of fiscal 1997 for the difference between the
estimated fair value and the exercise price.
On May 13, 1997, OrthAlliance issued warrants for the purchase of 90,000
shares of Common Stock to owners of certain of the Founding Practices. These
warrants were issued for referring other orthodontists to the Company. The
exercise price per share is equal to the initial public offering price.
OrthAlliance recorded
F-10
<PAGE> 59
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
compensation expense of $990,000 (unaudited and based upon an estimated fair
value of $11.00) related to these warrants in the second quarter of fiscal 1997
(the period of grant) in accordance with SFAS No. 123.
On May 13, 1997, a warrant to purchase 150,000 shares of Common Stock of
OrthAlliance was issued to a consultant and director of the Company, at an
exercise price equal to the initial public offering price. OrthAlliance recorded
compensation expense of approximately $1,650,000 (unaudited) in the second
quarter of fiscal 1997 for the fair value of the warrant based on an estimated
fair value of $11.00.
USOC also has warrants to purchase 225,000 shares of its common stock
outstanding to certain consultants. These warrants have an exercise price equal
to the initial public offering price, net of the underwriting discount. The
warrants expire five years from the effective date of the Offering. The fair
value at the date of grant ($337,500, based on an equity transaction of USOC)
was recorded as salaries, wages and benefits expense by USOC. These warrants
will convert in the Merger into the right to acquire an equal number of shares
of Common Stock. OrthAlliance will record compensation expenses of $2,475,000
(unaudited) related to these warrants in the third quarter of 1997 upon
successful completion of the Offering. (See Note 1 "The Merger" for further
discussion).
As discussed in Note 3, the Company has granted a warrant for the purchase
of 78,622 shares of Common Stock to J.C. Bradford & Co. The Company will record
the value of these warrants as an adjustment to additional paid-in-capital upon
completion of the Offering.
5. TRANSACTIONS WITH FOUNDING PRACTICES
As discussed in Note 1, the Company plans to complete, through a series of
stock acquisitions and asset transfers, the acquisition of certain assets and
assumption of certain liabilities of the Founding Practices (the "Transfers")
concurrently with an initial public offering of shares of its Common Stock.
The Founding Practices will enter into 20-year service agreements with
OrthAlliance. Additionally, the orthodontists at the Founding Practices will
enter into employment and noncompete agreements with the Founding Practices.
The Company will not employ orthodontists or control the practice of
orthodontics by the orthodontists employed by the Founding Practices. As
OrthAlliance will not be acquiring the future patient revenues earned by the
Practices, the Transfers are not deemed to be business combinations. In
accordance with SAB No. 48, the transferred nonmonetary assets and assumed
liabilities will be accounted for at the historical cost basis of the Founding
Practices. Each of the stockholders of the Founding Practices is deemed to be a
promoter of the IPO. Any monetary assets included in the Transfers will be
recorded at fair value. The resulting value of the net assets acquired by
OrthAlliance will be recorded as the value of the stock consideration tendered.
Cash consideration paid to selling orthodontists in conjunction with the
Transfers will be reflected as a dividend paid by OrthAlliance.
AGREEMENTS WITH FOUNDING PRACTICES
The Company is party to management service agreements with orthodontic
practices which are either Service Agreements or Consulting Agreements. The type
of management service agreement is determined by the Company and each Founding
Practice based primarily on applicable state regulations. The types of
management service agreements are as follows:
Service Agreements. The parties to each Service Agreement include the
Company, as successor through the Merger, and the Founding Practice, which
typically is a professional corporation or association owned by the related
orthodontist. Each Service Agreement generally requires the Company to perform
the following services for the Founding Practices: provide and maintain
specified furnishings and equipment; provide necessary
F-11
<PAGE> 60
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employees (except orthodontists and, where applicable law requires, hygienists
and dental assistants); establish appropriate business systems; purchase and
maintain inventory; perform payroll and accounting functions; provide billing
and collection services with respect to patients, insurance companies, and
third-party payors; arrange certain legal services not related to malpractice
litigation; design and execute a marketing plan; advise with respect to new
office locations; and manage and organize the Founding Practice's files and
records, including patient records where permitted by applicable law. If the
Founding Practice lacks sufficient funds to pay its current expenses, the
Company is also required to advance funds to the Founding Practice for the
purpose of paying such expenses. In exchange for performing the services
described above, the Company receives a management fee based on one of the three
fee structures described below.
The term of each Service Agreement is 20 years, subject to prior
termination by either party in the event the other party becomes subject to
voluntary or involuntary bankruptcy proceedings or materially breaches the
agreement, subject to a cure period. In addition, the Founding Practices may
terminate the Service Agreements upon the occurrence of a change of control of
OrthAlliance (as defined therein, which does not include a transaction approved
by the Company's Board of Directors). Upon the expiration or termination of the
Service Agreement, the Founding Practice may, and in certain circumstances must,
repurchase for cash (at book value) certain assets, including all equipment, and
assume certain liabilities of the Company related to the Founding Practice.
Each Service Agreement is generally not assignable by either party thereto
without the written consent of the other party; however, the Company may assign
the Service Agreement without the Founding Practice's consent to any entity
under common control with the Company. The Company and the Founding Practice
agree to indemnify each other for costs and expenses incurred by such other
party that are caused directly or indirectly by, as the case may be, the
Company's or the Founding Practice's intentional or negligent acts or omissions.
In the case of the Founding Practice's obligation to indemnify the Company, such
obligation also applies to intentional or negligent acts and omissions occurring
prior to the date of the Service Agreement.
Consulting Agreements. The parties to each Consulting Agreement include
the Company, as successor through the Merger, and the Founding Practice. Certain
provisions of the Consulting Agreement are substantially similar to the Service
Agreement, including provisions relating to the Company's obligation to loan
funds to the Founding Practice in the event the Founding Practice is unable to
pay its current expenses, termination of the Consulting Agreement, repurchase of
assets and assumption of liabilities by the Founding Practice upon expiration or
termination, assignment, and indemnification.
The services provided by the Company to the Founding Practice under each
Consulting Agreement generally include consulting with respect to equipment and
office needs; preparing staffing models appropriate for a Founding Practice;
advising and training with respect to business systems; purchasing and
maintaining inventory; advising with respect to and providing or arranging
accounting and bookkeeping services; advising with respect to developing a
marketing plan; assessing the financial feasibility of establishing new offices;
providing billing and collection services; and assisting the Founding Practice
in organizing and developing filing and recording systems. In exchange for such
services, the Company receives a consulting fee based on one of the three fee
structures described below.
CALCULATION OF MANAGEMENT FEES
The management fee is paid pursuant to the Service and Consulting
Agreements monthly to the Company by each Founding Practice based upon the
practice's adjusted patient revenue calculated on the accrual basis using
F-12
<PAGE> 61
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the revenue recognition criteria discussed in Note 2. There are three economic
models by which the management fee may be calculated under the two management
service agreements discussed above which are as follows:
(i) a designated percentage of adjusted patient revenue, ranging from
14% to 17%, subject to an annual adjustment based upon improvements in the
Founding Practice's operating margin in the most recent fiscal period as
compared with the immediately preceding fiscal period. No annual adjustment
shall be made which would result in reducing the designated percentage
applicable during the first year of the management agreement. Operating
margin is defined as the percentage determined by dividing operating profit
by adjusted patient revenue. Adjusted patient revenue under the agreement
is net patient revenue as determined under generally accepted accounting
principles, including adjustments for contractual allowances and other
discounts, plus an adjustment for uncollectible accounts. Operating profit
is equal to adjusted patient revenue less operating expenses, excluding the
management fee and such expenses associated with the Founding Practices
which the Company is prohibited from incurring, primarily consisting of
orthodontist compensation. The average designated percentage is 16.9% for
those Founding Practices under this arrangement.
(ii) a designated percentage ranging from 13.5% to 17% of adjusted
patient revenue with a potential annual adjustment of 25% of the increase
in operating margin (as defined above) in a fiscal year as compared to the
preceding fiscal year multiplied by the Adjusted Patient revenue for the
current fiscal year. The supplemental fee, if applicable, shall be paid in
a lump sum payment upon final determination of the improvement in the
Founding Practice's operating margin as compared to the prior fiscal year
period. The average designated percentage is 16.3% for those Founding
Practices under this arrangement.
(iii) a fixed dollar fee with annual established fixed increases for
each year of the management agreement.
COMBINED ADJUSTED PATIENT REVENUE OF THE FOUNDING PRACTICES
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
---------------- ----------------
ADJUSTED ADJUSTED
PATIENT REVENUE PATIENT REVENUE
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Practices participating under (i)........................... $39,896,000 $20,707,000
Practices participating under (ii).......................... 14,873,000 7,488,000
Practices participating under (iii)......................... 3,664,000 2,005,000
----------- -----------
Totals for Founding Practices..................... $58,433,000 $30,200,000
=========== ===========
</TABLE>
RECEIVABLES FROM FOUNDING PRACTICES
The difference in the timing of the recognition of patient revenue and cash
collections results in unbilled receivables in instances where recognition of
revenue precedes the patient's payment plan. The following table presents the
combined uncollected patient receivables, and unbilled patient receivables of
the Founding Practices net of allowance for bad debts. These amounts are not
receivables of the Company, but the net position of these receivables will be
acquired as part of the Transfers. Patient prepayments are recorded as
liabilities assumed by OrthAlliance.
F-13
<PAGE> 62
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED PATIENT RECEIVABLES, NET, OF THE FOUNDING PRACTICES
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Patient receivables, net of allowances of $251,000 and
$181,000, respectively.................................... $4,689,000 $3,436,000
Unbilled patient receivables, net of allowances of $149,000
and $136,000, respectively................................ 2,810,000 2,579,000
---------- ----------
Patient receivables, net of allowances............ $7,499,000 $6,015,000
========== ==========
</TABLE>
After the transfer of certain assets and certain liabilities of an
orthodontic practice, the Company will continue to purchase patient accounts
receivable generated by the Founding Practice and will record these receivables
on the balance sheet of OrthAlliance. These accounts receivable will become
assets of OrthAlliance. The receivables will be recorded at net realizable value
on the date of purchase. Any subsequent uncollectible account will be written
off by OrthAlliance and will be funded by the Allied Practice. All of the
accounts receivable will be assigned to the Company, which will generate the
funds required for (i) the expenses incurred by the Company to manage and
administer the Allied Orthodontist practice, (ii) the management fees, and (iii)
salaries for other employees of the Allied Practices with the balance due the
Allied Orthodontist. The Company will settle on a monthly basis for the amounts
noted above.
OPERATING EXPENSES OF FOUNDING PRACTICES
Subsequent to the Transfers, the operating expenses of the Founding
Practices will be the responsibility of OrthAlliance. The Company shall be
responsible for the payment of all operating expenses incurred by the practice
as required to operate an orthodontic office. These expenses will include the
following:
- Salaries, benefits, payroll taxes, workers compensation, health insurance
and other benefit plans, and other direct expenses of all employees of
OrthAlliance at each practice office, excluding those costs associated
with orthodontists and any other classification of employee which
OrthAlliance is prohibited from employing by law
- Direct costs of all employees or consultants that provide services to
each practice office
- Dental and office supplies as permitted by law
- Lease or rent payments as permitted by law, utilities, telephone and
maintenance expenses for practice facilities
- Property taxes on OrthAlliance assets located at practice offices
- Property, casualty, liability and malpractice insurance premiums
- Orthodontists recruiting expenses
- Interest on advances to practice bank accounts
- Advertising and other marketing expenses attributable to the promotion of
practice offices
All of the above expenses shall be paid directly to the third party
provider of the goods or services indicated. All of the above items will be
incurred by OrthAlliance. In exchange for incurring these expenses and providing
management services, the Company will record revenue in amounts equal to those
incurred expenses plus a management fee based on varying percentages of the
revenues of the Founding Practices.
The Founding Practices will retain responsibility for the payment of any
and all direct employment expenses, including benefits, for any orthodontist or
other employee that OrthAlliance is prohibited from employing by law. In
addition, the Founding Practices will retain responsibility for the payment of
continuing education expenses, seminars, professional licenses, professional
membership dues and all other expenses of any orthodontist.
F-14
<PAGE> 63
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The combined historical expenses of the Founding Practices for the year
ended December 31, 1996 and the six months ended June 30, 1997 were:
COMBINED DETAIL OF THE FOUNDING PRACTICES' EXPENSES
<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Salaries, wages and benefits of employees, excluding the
orthodontists......................................... $14,540,000 $ 7,800,000
Orthodontic supplies.................................... 5,404,000 2,590,000
Rent.................................................... 3,906,000 1,999,000
Advertising and marketing............................... 1,288,000 625,000
General and administrative expenses..................... 8,417,000 4,833,000
Depreciation and amortization on acquired assets........ 837,000 385,000
----------- -----------
Total expenses................................ $34,392,000 $18,232,000
=========== ===========
</TABLE>
The presentation of the Founding Practices' Expenses above is presented
solely for the purpose of providing disclosure to potential investors regarding
the group of entities with which OrthAlliance will be contracting to provide
future services. The historical expenses incurred by the Founding Practices (as
noted above) will not be assumed by OrthAlliance and are not necessarily
indicative of the expenses to be incurred by the Company in the future.
HISTORICAL INFORMATION OF FOUNDING PRACTICES
The combined historical financial information of the Founding Practices
presented herein is not related to the financial position or results of
operations of OrthAlliance. This information is presented solely for the purpose
of providing disclosures to potential investors regarding the group of entities
with which OrthAlliance will be contracting to provide future services due to
the significant relationships between OrthAlliance and the Founding Practices.
The Founding Practices' financial information is presented on a combined
historical basis due to the fact that their Service and Consulting Agreements
with the Company will be effective on the completion of the Offering. The
Founding Practices were not operated under common control or management during
the fiscal year ended December 31, 1996 or during the six months ended June 30,
1997.
6. SUBSEQUENT EVENT (UNAUDITED)
On June 10, 1996, USOC issued 320,000 shares of common stock to three
consultants, one of whom is now a director of OrthAlliance. These consultants
also will receive $400,000 upon a successful completion of the Offering. USOC
recorded compensation expense of approximately $480,000 related to this share
issuance. Each USOC share will convert into .496 shares of OrthAlliance Common
Stock and .071 shares of OrthAlliance Class B Common Stock. Since these shares
were issued more than one year ago, there is no additional compensation related
to these shares. The Company recorded consulting fees in the second quarter of
1997.
Subsequent to year end, OrthAlliance issued warrants to purchase 50,000
shares of Common Stock to an officer of USOC to replace a previously issued
option in USOC. The previously issued option was cancelled by USOC. OrthAlliance
recorded compensation expense of $550,000 (unaudited) on the warrant in the
second quarter of 1997. The Company also issued a warrant to purchase 150,000
shares of Common Stock of OrthAlliance to a consultant and director on May 13,
1997. OrthAlliance recorded compensation expense of $1,650,000 (unaudited) in
the second quarter of 1997 for the fair value of the warrant of $11.00.
Additionally, in
F-15
<PAGE> 64
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
connection with the Merger, warrants to purchase 225,000 shares of Common Stock
were assumed by OrthAlliance from USOC. OrthAlliance will record compensation
expense of $2,475,000 (unaudited) in the third quarter of 1997 upon successful
completion of the IPO related to the warrants to purchase 225,000 shares of
Common Stock.
Subsequent to December 31, 1996, the Company adopted the 1997 Employee
Stock Option Plan and the 1997 Non-Employee Director Stock Plan. A total of
1,200,000 shares of Common Stock are reserved for issuance under these plans.
Options to purchase 600,000 shares of Common Stock have been granted to certain
officers of the Company under the 1997 Employee Stock Option Plan at an exercise
price equal to the price to the public in the Offering.
In the third quarter of 1997, OrthAlliance is planning an initial public
offering of its common stock and will simultaneously exchange cash and shares of
its common stock for certain assets and liabilities of the Founding Practices.
OrthAlliance will begin to manage the administrative functions of the Founding
Practices under the terms of the management service agreements upon the
effective date of the IPO.
F-16
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To US Orthodontic Care, Inc.:
We have audited the accompanying balance sheet of US ORTHODONTIC CARE, INC.
(a development-stage enterprise and a Georgia corporation) as of December 31,
1996 and the related statements of operations, shareholders' deficit, and cash
flows for the period from inception (February 7, 1996) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of US Orthodontic Care, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the period from inception (February 7, 1996) to December 31, 1996 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 4, 1997
F-17
<PAGE> 66
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 59,940 $ 20,430
Deferred issuance costs................................... 0 210,109
Other current assets...................................... 2,250 500
----------- -----------
Total current assets.............................. 62,190 231,039
----------- -----------
EQUIPMENT, at cost.......................................... 29,441 34,281
Less accumulated depreciation............................. (2,786) (5,814)
----------- -----------
Equipment, net.................................... 26,655 28,467
----------- -----------
Total assets...................................... $ 88,845 $ 259,506
=========== ===========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 847,203 $ 643,464
Accrued salaries.......................................... 100,000 0
Due to related party...................................... 173,754 0
----------- -----------
Total current liabilities......................... 1,120,957 643,464
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIT) EQUITY:
Common stock; no par value; 10,000,000 shares authorized,
2,195,214 and 2,471,714 shares issued and outstanding
at December 31, 1996 and June 30, 1997, respectively... 0 0
Additional paid-in capital................................ 1,760,000 3,122,250
Warrants.................................................. 339,750 589,750
Deficit accumulated during the development stage.......... (3,131,862) (4,095,958)
----------- -----------
Total shareholders' (deficit) equity.............. (1,032,112) (383,958)
----------- -----------
Total liabilities and shareholders' (deficit)
equity.......................................... $ 88,845 $ 259,506
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 67
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION FOR THE SIX FOR THE SIX
(FEBRUARY 7, MONTHS MONTHS
1996) TO ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES................................................ $ 0 $ 0 $ 0
EXPENSES:
Salaries, wages, and benefits......................... (1,878,205) (1,304,828) (514,419)
General and administrative............................ (1,253,657) (99,241) (457,586)
----------- ----------- -----------
Total expenses................................ (3,131,862) (1,404,069) (972,005)
----------- ----------- -----------
OTHER INCOME (EXPENSE), NET............................. 0 0 7,909
----------- ----------- -----------
NET LOSS................................................ $(3,131,862) $(1,404,069) $ (964,096)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 68
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM INCEPTION (FEBRUARY 7, 1996) TO JUNE 30, 1997
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL DURING THE SHAREHOLDERS'
------------------ PAID IN DEVELOPMENT (DEFICIT)
SHARES AMOUNT CAPITAL STAGE WARRANTS EQUITY
--------- ------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 7, 1996... 0 $0 $ 0 $ 0 $ 0 $ 0
Common stock issued to
Incorporator............. 1,576,714 0 400,000 0 0 400,000
Common stock issued to
directors and
consultants.............. 495,000 0 742,500 0 0 742,500
Common stock issued to
investors................ 123,500 0 617,500 0 0 617,500
Warrants granted to
consultants.............. 0 0 0 0 339,750 339,750
Net loss.................... 0 0 0 (3,131,862) 0 (3,131,862)
--------- -- ---------- ----------- -------- -----------
BALANCE AT DECEMBER 31,
1996........................ 2,195,214 0 1,760,000 (3,131,862) 339,750 (1,032,112)
Common Stock issued to
investors................ 276,500 0 1,362,250 0 0 1,362,250
Warrants granted to
officer.................. 0 0 0 0 250,000 250,000
Net loss.................... 0 0 0 (964,096) 0 (964,096)
--------- -- ---------- ----------- -------- -----------
BALANCE AT JUNE 30, 1997
(unaudited)................. 2,471,714 $0 $3,122,250 $(4,095,958) $589,750 $ (383,958)
========= == ========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 69
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(FEBRUARY 7, FOR THE SIX FOR THE SIX
1996) TO MONTHS ENDED MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $(3,131,862) $(1,404,069) $ (964,096)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation............................... 2,786 270 3,028
Compensation expense related to stock
grants and warrants...................... 1,080,000 1,080,000 250,000
Changes in assets and liabilities:
Due from incorporator.................... 0 0 (210,109)
Deferred issuance costs.................. 0 (205,142) 0
Other assets............................. (2,250) (2,250) 1,750
Accounts payable......................... 847,203 56,168 (203,739)
Accrued salaries......................... 100,000 83,111 (100,000)
Due to Incorporator...................... 173,754 0 (173,754)
----------- ----------- -----------
Total adjustments..................... 2,201,493 1,012,157 (432,824)
----------- ----------- -----------
Net cash used in operating
activities.......................... (930,369) (391,912) (1,396,920)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment......................... (29,441) (10,338) (4,840)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued to Incorporator........... 400,000 400,000 0
Common stock issued to investors.............. 617,500 0 1,362,250
Warrants granted to consultants............... 2,250 2,250 0
----------- ----------- -----------
Net cash provided by financing
activities.......................... 1,019,750 402,250 1,362,250
----------- ----------- -----------
NET CHANGE IN CASH.............................. 59,940 0 (39,510)
CASH, beginning of period....................... 0 0 59,940
----------- ----------- -----------
CASH, end of period............................. $ 59,940 $ 0 $ 20,430
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE> 70
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 IS UNAUDITED UNLESS INDICATED)
1. BUSINESS AND ORGANIZATION
US Orthodontic Care, Inc. ("USOC" or the "Company") was incorporated as a
Georgia corporation on February 7, 1996 to effect the transfer (the "Transfers")
of certain operating assets and certain liabilities of, or the stock of an
entity holding certain assets and certain liabilities of orthodontic practice
entities (the "Founding Practices"). USOC and Premier Orthodontic Group, Inc.
("Premier") will be merged with and into OrthAlliance Inc., a newly formed
company ("OrthAlliance") (the "Merger"). The stockholders of USOC and Premier
are considered promoters; therefore, the Merger will be accounted for pursuant
to Staff Accounting Bulletin No. 48, "Transfers of Nonmonetary Assets by
Promoters and Shareholders," as will the Transfers. The Merger will result in
carryover basis of assets and liabilities of USOC and Premier. In the Merger,
the outstanding capital stock of USOC and Premier will be automatically
converted into 1,750,000 shares of Class A Common Stock of OrthAlliance (the
"Common Stock") and 250,000 shares of Class B Common Stock of OrthAlliance (the
"Class B Common Stock"). USOC will receive 1,225,000 shares of Class A Common
Stock and 175,000 shares of Class B Common Stock in the Merger. The stockholders
of USOC and Premier shall receive 70% and 30%, respectively, of the Common Stock
and Class B Common Stock issued as consideration in the Merger.
Although USOC has not conducted any operations to date, other than the
initial capitalization and expenses incurred in connection with the Transfers
and an initial public offering of shares of Common Stock (the "IPO"), it has
entered into agreements to acquire, simultaneously with and as a condition to
the consummation of the IPO, the stock of entities holding certain assets and
certain liabilities of, or certain assets and liabilities of established
orthodontic practices. These agreements and the rights thereto are being
acquired by OrthAlliance pursuant to the Merger. The financial statements have
been prepared on the basis that the proposed transactions will occur, although
no assurance can be made that the proposed transactions will be completed or
that OrthAlliance will be successful in completing planned future acquisitions
of orthodontic practices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deferred Issuance Costs
The Company incurred costs associated with a proposed initial public
offering of $450,000 in 1996. As this offering did not occur, the Company
expensed those items.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
provided using the straight-line method over the assets' estimated useful lives
of five to seven years.
Equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Computer equipment.......................................... $15,932 $20,772
Furniture and fixtures...................................... 13,509 13,509
------- -------
29,441 34,281
Less accumulated depreciation............................. (2,786) (5,814)
------- -------
$26,655 $28,467
======= =======
</TABLE>
F-22
<PAGE> 71
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The carrying values of cash and accounts payable approximate their fair
values principally because of the short-term maturities of these instruments.
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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements as of and for the six months ended June 30, 1997
are unaudited; however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the unaudited financial statements for this interim period has
been included. The results of interim periods are not necessarily indicative of
the results to be obtained for a full year.
Stock Options and Warrants
The Company accounts for the issuance of options and warrants to employees
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Options and warrants issued to
employees at an exercise price at or above fair value at the date of grant would
require no compensation expense to be recorded under APB No. 25. Options and
warrants issued to nonemployees will be accounted for under Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123"). Options and warrants issued to nonemployees will require
compensation expense to be recorded for the fair value of the equity instrument
granted.
Accounting Pronouncements
The Company anticipates that the Emerging Issues Task Force of the
Financial Accounting Standards Board will be evaluating certain matters relating
to the orthodontic/physician practice management industry such as the ability to
consolidate the revenues of an orthodontic/physician practice through a
contractual management agreement, mergers between orthodontic/physician
practices and management entities and merger transactions that qualify for
pooling-of-interest treatment. The Company expects this evaluation will include
a review of accounting for business combinations. The Company is unable to
predict the impact, if any, that this review may have on the Company's
acquisition strategy, allocation of purchase price related to acquisitions, and
amortization life assigned to intangible assets.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS No. 121") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." At December 31, 1996 and
June 30, 1997, the Company had no significant long-lived assets. Under SFAS No.
121, the Company will analyze intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. If this review indicates that the carrying amount of the asset
may not be recoverable, as determined based on the estimated future operations
that result from the assets acquired, the carrying value of the asset will be
reduced to fair value. Among the factors that the Company will continually
evaluate are unfavorable changes in each orthodontic group's relative market
share and local market competitive environment, current period and forecasted
operating and cash flow levels of the orthodontic group and the impact on the
management fee earned by the Company, and legal factors governing the practice
of orthodontics.
F-23
<PAGE> 72
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SHAREHOLDERS' (DEFICIT) EQUITY
In April 1996, 1,576,714 shares of common stock were issued at a total
price of $400,000 to Dr. Robert N. Pickron (the "Incorporator"). Management
believes that the $.2537 per share received in consideration for those shares
represented the fair value of the shares at that date. On June 10, 1996, an
additional 495,000 shares were issued to certain consultants of the Company in
consideration for services provided to that date. Management believes that the
fair value of the shares issued at that date, as calculated for compensation
expense, was $1.50 per share. The fair value of these shares was recorded as
compensation expense of $742,500 and is included in salaries, wages and benefits
in the accompanying statement of operations.
On October 23, 1996, USOC offered 400,000 shares of common stock to
affiliates of anticipated Founding Practices and other unrelated investors
through a private placement memorandum ("PPM") at a price of $5.00 per share. As
of December 31, 1996, 123,500 shares were issued under the PPM for net proceeds
of $617,500.
On February 4, 1997, the Company offered the shares not sold in the PPM
discussed above (276,500 shares) at $5.00 per share through a second PPM to
affiliates of anticipated Founding Practices and other unrelated accredited
investors.
4. INCOME TAXES
As reflected in the accompanying statements of operations, the Company
incurred a loss from operations during the period from inception (February 7,
1996) to December 31, 1996 and for the six months ended June 30, 1997. Due to
the limited operations of the Company since its inception and the pending
Offering, a valuation allowance has been recorded to fully reserve for the
deferred tax benefits generated from tax deferred issuance costs. There is no
significant difference in the tax and book bases of the Company's assets or
liabilities that would give rise to deferred tax balances.
5. RELATED-PARTY TRANSACTIONS
The Incorporator funded expenses of USOC from the date of inception through
December 31, 1996, as only a portion of the funds provided from the PPM was
available for use prior to year-end. Of the amount funded by the Incorporator,
$173,754 is included in a current liability on the accompanying balance sheet as
of December 31, 1996 and was reimbursed by USOC after December 31, 1996. The
remaining amount funded by the Incorporator ($400,000) was repaid through the
issuance of 1,576,714 shares of common stock and is included in additional
paid-in capital on the accompanying balance sheet.
6. STOCK OPTIONS AND WARRANTS
The Company will record compensation expense on its warrants for the
difference between the fair market value and their exercise price. Fair market
value was based upon equity transactions with unrelated third parties.
At December 31, 1996, the Company had warrants outstanding to consultants
of the Company and a future directors of OrthAlliance to purchase 225,000 shares
of common stock at an exercise price equal to the initial public offering price
net of the underwriting discount. The warrants expire five years from the
effective date of the Offering. The fair value at the date of grant of these
warrants of $337,500 ($1.50 per share based upon valuations of the Company at
the time of issuance) was recorded as salaries, wages and benefits in the
accompanying statement of operations for the period from inception (February 7,
1996) to December 31, 1996. The warrants discussed above will convert in the
Merger into warrants of OrthAlliance with the right to acquire an equal number
of shares of Common Stock of OrthAlliance.
F-24
<PAGE> 73
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On January 1, 1997, the Company granted an option to an officer for the
purchase of 50,000 shares of common stock at an exercise price of $.01 per
share. The Company recorded compensation expense (based upon unrelated third
party equity transactions of USOC at a price of $5.00) related to such option of
$250,000 in the first quarter of fiscal 1997. On June 10, 1997, the option was
cancelled and a warrant was issued for the purchase of 50,000 shares of
OrthAlliance Common Stock with an exercise price of $.01 per share. The
cancellation of the option and the issuance of a warrant created a new
measurement date. OrthAlliance will record compensation expense of $550,000
(unaudited) in the second quarter of 1997 for the difference between the
estimated fair value and the exercise price.
F-25
<PAGE> 74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Premier Orthodontic Group, Inc.:
We have audited the accompanying balance sheet of PREMIER ORTHODONTIC
GROUP, INC. (a development-stage enterprise and a Delaware corporation) as of
December 31, 1996 and the related statement of operations, owners' deficit, and
cash flows for the period from inception (November 26, 1996) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Premier Orthodontic Group,
Inc. as of December 31, 1996 and the results of its operations and its cash
flows for the period from inception (November 26, 1996) to December 31, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 11, 1997
F-26
<PAGE> 75
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 0 $ 563,815
--------- ---------
EQUIPMENT, at cost.......................................... 4,971 21,848
Less accumulated depreciation............................. (166) (1,911)
--------- ---------
Equipment, net......................................... 4,805 19,937
OTHER ASSETS................................................ 0 14,863
--------- ---------
Total assets...................................... $ 4,805 $ 598,615
========= =========
LIABILITIES AND OWNERS'/STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 20,241 $ 94,080
Accrued consulting fees................................... 239,735 239,735
--------- ---------
Total current liabilities......................... 259,976 333,815
NOTE PAYABLE................................................ 0 1,010,000
COMMITMENTS AND CONTINGENCIES
OWNERS'/STOCKHOLDERS' DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE, $.001 par value; 3,000 shares
authorized; 100 shares issued and outstanding at June 30,
1997...................................................... (255,171) (745,200)
--------- ---------
Total liabilities and owners'/stockholders'
deficit......................................... $ 4,805 $ 598,615
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE> 76
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION FOR THE SIX
(NOVEMBER 26, MONTHS
1996) TO ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES.................................................... $ 0 $ 0
----------- -----------
EXPENSES:
Consulting fees........................................... (239,735) (157,546)
General and administrative................................ (15,436) (345,767)
----------- -----------
Total expenses.................................... (255,171) (503,313)
----------- -----------
OTHER INCOME (EXPENSE), NET................................. 0 13,284
----------- -----------
NET LOSS.................................................... $ (255,171) $ (490,029)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE> 77
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN OWNERS'/STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (NOVEMBER 26, 1996) TO JUNE 30, 1997
<TABLE>
<S> <C>
INITIAL INVESTED CAPITAL (NOVEMBER 26, 1996)................ $ 0
Net loss.................................................. (255,171)
---------
OWNERS' DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE AT
DECEMBER 31, 1996......................................... (255,171)
Net loss.................................................. (490,029)
---------
OWNERS'/STOCKHOLDERS' DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE AT JUNE 30, 1997 (unaudited)............ $(745,200)
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-29
<PAGE> 78
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(NOVEMBER 26, FOR THE SIX
1996) TO MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(255,171) $(490,029)
--------- ---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 166 1,745
Changes in assets and liabilities:
Other assets......................................... 0 (14,863)
Accounts payable and accrued liabilities............. 20,241 73,839
Accrued consulting fees.............................. 239,735 0
--------- ---------
Total adjustments................................. 260,142 60,721
--------- ---------
Net cash provided by (used) in operating
activities...................................... 4,971 (429,308)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment..................................... (4,971) (16,877)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable................................ 0 1,010,000
--------- ---------
NET CHANGE IN CASH.......................................... 0 563,815
CASH, beginning of period................................... 0 0
--------- ---------
CASH, end of period......................................... $ 0 $ 563,815
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE> 79
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 IS UNAUDITED UNLESS INDICATED)
1. BUSINESS AND ORGANIZATION
Premier Orthodontic Group, Inc., a Delaware corporation ("Premier" or the
"Company"), was incorporated on January 30, 1997. Premier Orthodontic Ventures,
LLC ("Premier LLC"), formed on November 26, 1996, incurred certain expenses on
behalf of the Company from November 26, 1996 to January 30, 1997. Upon the
incorporation of the Company on January 30, 1997, the Company reimbursed the
expenses incurred by Premier LLC on behalf of the Company from the proceeds of
the loan discussed in Note 7. The accompanying financial statements have been
prepared based on the expenses incurred by Premier LLC on behalf of the Company
from November 26, 1996 to December 31, 1996.
The Company was incorporated to effect the transfer (the "Transfers") of
certain operating assets of, and certain liabilities of, or the stock of an
entity holding certain assets of and certain liabilities of multiple orthodontic
entities (the "Founding Practices"). Premier and US Orthodontic Care, Inc.
("USOC") intend to merge with and into a newly formed company, OrthAlliance,
Inc. ("OrthAlliance") (the "Merger"). Prior to the Merger, the sole stockholder
of OrthAlliance held a minority interest in Premier. The stockholders of USOC
and Premier are considered promoters; therefore, the Merger will be accounted
for pursuant to Staff Accounting Bulletin No. 48, "Transfers of Nonmonetary
Assets by Founding Promoters and Shareholders," as will the Transfers. The
Merger will result in carryover basis of assets and liabilities of USOC and
Premier. In the Merger, the outstanding capital stock of USOC and Premier will
be automatically converted into 1,750,000 shares of Class A common stock and
250,000 shares of Class B common stock. The stockholders of USOC and Premier
shall receive 70% and 30%, respectively, of the Class A common stock and Class B
common stock issued as consideration in the Merger.
Although Premier has not conducted any operations to date, other than the
initial capitalization and expenses incurred in connection with the Transfers
and a proposed public offering (the "IPO"), it has entered into agreements to
acquire, simultaneous with and as a condition to the consummation of the IPO,
the stock of an entity holding the assets and certain liabilities of, or certain
assets and liabilities of established orthodontic practices ("Founding
Practices"). These agreements and the rights thereto are being acquired by
OrthAlliance pursuant to the merger of USOC and Premier with and into
OrthAlliance. The financial statements have been prepared on the basis that the
proposed transaction will occur, although no assurance can be made that the
proposed transaction will be completed or that OrthAlliance will be successful
in completing planned future acquisitions of orthodontic practices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Equipment
Equipment is stated at cost, less accumulated deprecation. Depreciation is
provided using the straight-line method over the assets' estimated useful lives
of five to seven years.
Equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
<S> <C> <C>
Computer equipment.......................................... $4,971 $20,225
Furniture and fixtures...................................... 0 1,623
Less accumulated depreciation............................. (166) (1,911)
------ -------
$4,805 $19,937
====== =======
</TABLE>
F-31
<PAGE> 80
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The carrying values of financial instruments approximate their fair values
principally because of the short-term maturities of these instruments.
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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements as of and for the six months ended June 30, 1997
are unaudited; however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the unaudited financial statements for this interim period has
been included. The results of interim periods are not necessarily indicative of
the results to be obtained for a full year.
Accounting Pronouncements
The Company anticipates that the Emerging Issues Task Force of the
Financial Accounting Standards Board will be evaluating certain matters relating
to the orthodontic/physician practice management industry such as the ability to
consolidate the revenues of an orthodontic/physician practice through a
contractual management agreement, mergers between orthodontic/physician
practices and management entities and merger transactions that qualify for
pooling-of-interest treatment. The Company expects this evaluation will include
a review of accounting for business combinations. The Company is unable to
predict the impact, if any, that this review may have on the Company's
acquisition strategy, allocation of purchase price related to acquisitions, and
amortization life assigned to intangible assets.
On November 26, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS No. 121") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." At December 31, 1996 and
June 30, 1997, the Company had no significant long-lived assets. Under SFAS No.
121, the Company will analyze intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. If this review indicates that the carrying amount of the asset
may not be recoverable, as determined based on the estimated future operations
that result from the assets acquired, the carrying value of the asset will be
reduced to fair value. Among the factors that the Company will continually
evaluate are unfavorable changes in each orthodontic group's relative market
share and local market competitive environment, current period and forecasted
operating and cash flow levels of the orthodontic group and the impact on the
management fee earned by the Company, and legal factors governing the practice
of orthodontics.
3. INCOME TAXES
As reflected in the accompanying statement of operations, the Company
incurred a loss from operations during the period from inception (November 26,
1996) to December 31, 1996 and for the six months ended June 30, 1997. Due to
the limited operations of the Company since its inception and the pending
Offering, a valuation allowance has been recorded to fully reserve for the
deferred tax benefits generated from tax deferred issuance costs. There is no
significant difference in the tax and book bases of the Company's assets or
liabilities that would give rise to deferred tax balances.
F-32
<PAGE> 81
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. RELATED-PARTY TRANSACTIONS
The incorporators of Premier funded expenses of Premier from the date of
inception through the end of the year. Of the amount funded by the founders,
$17,630 is reflected as a current liability on the accompanying balance sheet as
of December 31, 1996 and was reimbursed by Premier after year-end.
5. COMMITMENTS AND CONTINGENCIES
The Company has agreed to pay certain consultants approximately $500,000
upon completion of the Offering. OrthAlliance assumed the payment of these
consulting fees in the Merger and expensed these fees in the second quarter of
1997.
OrthAlliance will be subject to certain government regulation at the
federal and state levels. In compliance with certain regulatory requirements,
OrthAlliance will not control the practice of orthodontists. Long-term service
and consulting services agreement may be challenged by certain states as to
their legality. There also can be no assurance that the laws and regulations of
states in which OrthAlliance will maintain operations will not change or be
interpreted in the future to restrict OrthAlliance's relationships with
orthodontists.
6. SUBSEQUENT EVENTS
In January 1997, Premier LLC loaned the Company $1,010,000. The Company
will pay the total amount of the loan to Premier LLC of $1,010,000 in cash, plus
accrued interest at prime plus 1% from the proceeds of the Offering.
OrthAlliance will assume the loan to Premier LLC in the Merger and will pay such
loan with a portion of the proceeds of the IPO.
F-33
<PAGE> 82
ORTHALLIANCE, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Simultaneously with and as a condition to the closing of the proposed
public offering (the "IPO"), OrthAlliance, Inc. (the "Company" or
"OrthAlliance") will acquire certain operating assets of separate orthodontic
practices (collectively, the "Founding Practices") in exchange for cash and
shares of Class A common stock, $.001 par value per share (the "Common Stock"),
and enter into long-term management or consulting services agreements with the
Founding Practices (the "Transfers"). As a result of the merger of Premier
Orthodontic Group, Inc. ("Premier") and US Orthodontic Care, Inc. ("USOC") with
and into OrthAlliance, effective prior to the closing of the initial public
offering (the "Merger"), OrthAlliance succeeds to the rights of Premier and USOC
under agreements with the Founding Practices. USOC and Premier will be merged
with and into OrthAlliance prior to the Transfers with the Founding Practices.
OrthAlliance was created as a shell corporation to begin business operations in
connection with the IPO. Prior to the Merger, the sole stockholder of
OrthAlliance held a minority interest in Premier. There were two common
stockholders who owned common stock in USOC and Premier, and there are no common
stockholders between USOC and OrthAlliance. The stockholders of USOC and Premier
are considered promoters; therefore, the Merger will be accounted for pursuant
to Staff Accounting Bulletin No. 48, "Transfers of Nonmonetary Assets by
Promoters and Shareholders" ("SAB No. 48") as will the transfers with the
Founding Practices (the owners of the Founding Practices are also considered
promoters). As a result, these transactions will result in the carryover basis
of assets and liabilities of USOC and Premier. In the Merger, the outstanding
capital stock of USOC and Premier will be automatically converted into an
aggregate of 1,750,000 shares of Common Stock and 250,000 shares of Class B
common stock. The stockholders of USOC and Premier shall receive 70% and 30%,
respectively, of the Common Stock and Class B common stock issued as
consideration in the Merger.
The following unaudited pro forma combined balance sheet gives effect to
the Merger, the Transfers and the IPO, and is based upon the historical
financial statements of OrthAlliance, Premier, USOC, and the Founding Practices
as a group.
The unaudited pro forma combined balance sheet gives effect as if such
events had occurred on June 30, 1997. The unaudited pro forma combined balance
sheet should be read in conjunction with other financial information, including
the financial statements of USOC, Premier and OrthAlliance, included elsewhere
in this Prospectus.
The Company will not employ orthodontists or control the practice of
orthodontics. As the Company will not be acquiring the future patient revenues
earned by the Founding Practices, the Transfers are not deemed to be business
combinations. In accordance with SAB No. 48 the Transfers will be accounted for
at the historical cost basis with the shares of common stock to be issued in
those transactions being valued at the historical cost of the nonmonetary assets
acquired net of liabilities assumed.
The unaudited pro forma combined balance sheet is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have been achieved if the Transfers had
been consummated on the date indicated, nor is it necessarily indicative of the
future operating results of the Company.
F-34
<PAGE> 83
ORTHALLIANCE, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED PRO POST
FOUNDING PRO FORMA FORMA IPO PRO FORMA
ORTHALLIANCE PREMIER USOC PRACTICES ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
------------ ------- ------- --------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash
equivalents........... $ -- $ 564 $ 20 $ 2,881 $ (2,881)(2) $ 584 $ 9,645(4) $10,229
Patient receivables,
net................... -- -- -- 3,436 -- 3,436 -- 3,436
Unbilled patient
receivables, net...... -- -- -- 2,579 -- 2,579 -- 2,579
Deferred issuance
costs................. -- -- 210 -- -- 210 (210)(4) --
Deferred income taxes... -- -- -- -- 1,730(3) 1,730 -- 1,730
Other current assets.... -- -- 1 1,507 (1,507)(2) 1 -- 1
------ ------ ------ ------- -------- ------- -------- -------
Total current
assets.......... -- 564 231 10,403 (2,658) 8,540 9,435 17,975
Equipment and
improvements, net..... -- 20 29 4,665 (2,589)(2) 2,125 -- 2,125
Notes receivable from
Founding Practices.... -- -- -- -- 819(2) 819 -- 819
Other assets............ -- 15 -- 941 (838)(2) 118 -- 118
------ ------ ------ ------- -------- ------- -------- -------
Total assets...... $ -- $ 599 $ 260 $16,009 $ (5,266) $11,602 $ 9,435 $21,037
====== ====== ====== ======= ======== ======= ======== =======
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Amounts drawn in excess
of cash............... $ -- $ -- $ -- $ 200 $ (200)(2) $ -- $ -- $ --
Accounts payable and
other current
liabilities........... 900 334 644 614 (400)(2) 2,092 (900)(4) 982
(210)(4)
Patient prepayments..... -- -- -- 1,963 -- 1,963 -- 1,963
Payable to Founding
Practices............. -- -- -- -- 13,759(2) 13,759 (13,759)(4) --
Deferred income taxes... -- -- -- -- 215(3) 215 -- 215
Current portion of
long-term debt........ -- -- -- 878 (878)(2) -- -- --
------ ------ ------ ------- -------- ------- -------- -------
Total current
liabilities..... 900 334 644 3,655 12,496 18,029 (14,869) 3,160
Long-term debt, less
current portion....... -- 1,010 -- 3,196 (1,194)(2) 3,012 (3,012)(4) --
------ ------ ------ ------- -------- ------- -------- -------
Total
liabilities..... 900 1,344 644 6,851 11,302 21,041 (17,881) 3,160
------ ------ ------ ------- -------- ------- -------- -------
STOCKHOLDERS' EQUITY
(DEFICIT)
OrthAlliance, Inc.:
Class A Common Stock
$.001 par value,
70,000,000 shares
authorized, one
share issued and
outstanding and
10,232,985(a)
issued and
outstanding pro
forma as
adjusted.......... -- -- -- -- 2(2) 8 3(4) 11
6(2)
Class B Common Stock
$.001 par value,
250,000 shares
authorized, no
shares issued and
outstanding and
250,000 issued and
outstanding pro
forma as
adjusted.......... -- -- -- -- --(2) -- -- --
Additional paid-in
capital............. -- -- -- -- 4,834(2) 5,212 27,313(4) 31,660
(8)(2) (865)(5)
1,515(3)
3,122(1)
(4,096)(1)
(745)(1)
590(1)
Warrants.............. 3,190 -- -- -- 2,475(1) 5,665 865(5) 6,530
Accumulated deficit... (4,090) -- -- -- (13,759)(2) (20,324) -- (20,324)
(2,475)(1)
US Orthodontic Care, Inc.:
Common Stock; no par
value, 10,000,000
shares authorized,
2,471,714 shares
issued and
outstanding........... -- -- -- -- -- -- -- --
Additional paid-in
capital............... -- -- 3,122 -- (3,122)(1) -- -- --
Warrants................ -- -- 590 -- (590)(1) -- -- --
Accumulated deficit..... -- -- (4,096) -- 4,096(1) -- -- --
Premier Orthodontic Group,
Inc.:
Common Stock; $.001 par
value, 3,000 shares
authorized 100 shares
issued and
outstanding........... -- -- -- -- -- -- -- --
Additional paid-in
capital............... -- -- -- -- -- -- -- --
Accumulated deficit..... -- (745) -- -- 745(1) -- -- --
Combined Founding
Practices' Equity....... -- -- -- 9,158 (9,158)(2) -- -- --
------ ------ ------ ------- -------- ------- -------- -------
Total stockholders
equity/deficit... (900) (745) (384) 9,158 (16,568) (9,439) 27,316 17,877
------ ------ ------ ------- -------- ------- -------- -------
Total liabilities
and
stockholders'
equity/deficit... $ -- $ 599 $ 260 $16,009 $ 5,266 $11,602 $ 9,435 $21,037
====== ====== ====== ======= ======== ======= ======== =======
</TABLE>
(a) Includes 5,882,985 shares issued in the Transfers, 1,750,000 shares issued
in the Merger and 2,600,000 shares issued in the IPO.
See accompanying notes to unaudited pro forma combined balance sheet.
F-35
<PAGE> 84
ORTHALLIANCE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following is a summary of the adjustments reflected in the unaudited
combined pro forma balance sheet:
(1) USOC and Premier, pursuant to the Merger, will transfer their assets
and liabilities into OrthAlliance prior to the purchase and sale
agreements with the orthodontic practices. The stockholders of USOC
and Premier are considered promoters; therefore, this transfer will be
accounted for pursuant to SAB No. 48 as will the transfers with the
orthodontic practices. This transfer will result in a carryover basis
of the assets and liabilities of USOC and Premier. The assets to be
received by OrthAlliance generally include cash, other current assets,
equipment, other assets, and contract rights. The liabilities to be
assumed generally include accounts payable, accrued liabilities, and
notes payable. The historical cost basis will be their respective
carrying value on Premier's and USOC's respective balance sheet at the
date of transfer, except contract rights which have a historical cost
basis of zero.
In the Merger, the outstanding common stock of USOC and Premier will
be converted into an aggregate of 1,750,000 shares of Class A Common
Stock ("Common Stock") and 250,000 shares of Class B Common Stock
("Class B Common Stock") of the Company. Each share of USOC Common
Stock will convert into .496 shares of Common Stock and .071 shares of
Class B Common Stock. The 100 shares of Premier common stock will
convert into 525,000 shares of Common Stock and 75,000 shares of Class
B Common Stock. The USOC and Premier stockholders, respectively, will
receive an aggregate of 1,225,000 and 525,000 shares of Common Stock
and 175,000 and 75,000 shares of Class B Common Stock, respectively.
Premier is owned by certain individuals and Premier Orthodontic
Ventures, LLC ("POV LLC"). POV LLC has two classes of membership
interests, Class A and Class B. Immediately following completion of
the Offering, POV LLC intends to redeem all of its membership
interests. The redemption provisions require that POV LLC distribute
shares of Common Stock with a market value equal to two times the
Class B members' capital contribution, except with respect to one
Class B member who shall receive shares of Common Stock with a value
equal to three times his Class B capital contribution. The exact
number of shares of Common Stock to be distributed to the Class B
members will be determined by multiplying the capital contribution by
two (or three with respect to one Class B member) and dividing the
product thereof by the market price per share of the Common Stock. All
shares of Common Stock held by POV LLC after redemption of the Class B
members' interest will be distributed pro rata to the Class A members
in accordance with their membership interests. All of the Class B
Common Stock received by POV LLC in the Merger shall be distributed
pro rata to the Class A members.
USOC had warrants for the purchase of 225,000 shares of common stock
outstanding prior to the Merger. Assuming the warrants are not
converted prior to the Merger, the warrants will convert in the Merger
into warrants of OrthAlliance with the right to acquire an equal
number of shares of Common Stock of OrthAlliance. USOC has recorded
compensation expense related to certain of these warrants at the date
of grant. OrthAlliance will record additional compensation expense of
$2,475,000 (unaudited) related to these warrants in the third quarter
of 1997 upon successful completion of the IPO. The compensation
expense is based on an estimated fair value of $11.00 per share.
Because the value of the outstanding warrants is related to an initial
public offering, the intrinsic value of the USOC warrants has been
transferred to the Company's warrants.
OrthAlliance has warrants to purchase 290,000 shares of Common Stock
outstanding prior to the Offering. OrthAlliance recorded compensation
expense of $3,190,000 (unaudited) related to 290,000 of these warrants
in the second quarter of 1997 based on an estimated fair value of
$11.00 per share and will record the fair value of the remaining
78,622 as an adjustment to additional paid-in-capital upon completion
of the IPO.
(2) Reflects the issuance of 5,882,985 shares of Common Stock of the
Company and cash of $13,759,000 in exchange for certain operating
assets of the Founding Practices, and to remove certain assets,
liabilities and owners' equity not acquired as part of the Transfers.
The Founding Practices will receive up to twenty percent of their
practice asset values in cash and the remainder in Common Stock. The
F-36
<PAGE> 85
ORTHALLIANCE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
operating assets and liabilities assumed from the Founding Practices
reflected herein are as follows (in thousands):
<TABLE>
<S> <C>
Billed patient receivables, net of allowances of $181....... $ 3,436
Unbilled patient receivables, net of allowances of $136..... 2,579
Other assets................................................ 102
Equipment and improvements, net............................. 2,076
Notes receivable from Founding Practices.................... 819
Accounts payable and accrued liabilities.................... (213)
Patient prepayments......................................... (1,963)
Long-term debt.............................................. (2,002)
-------
Total............................................. $ 4,834
=======
</TABLE>
The above amounts have been reflected as a pro forma adjustment to
increase additional paid-in-capital.
(3) Reflects the establishment of deferred income taxes for tax deferred
issuance costs for the Company after the Transfers. Assuming
completion of the Transfers, management believes that it is more
likely than not that the deferred tax assets will be realized. USOC
and Premier incurred costs of approximately $3,387,000 from inception
through December 31, 1996 and approximately $1,454,000 for the six
months ended June 30, 1997 related to issuance costs as noted in the
respective statements of stockholders equity for USOC and Premier.
These costs were expensed. The Company will defer future issuance
costs beginning with the second quarter of 1997. These future issuance
costs will be offset against the proceeds of the IPO and will be
expense if the IPO is not completed.
(4) The summary of the Post IPO Adjustments are as follows:
<TABLE>
<S> <C>
Gross proceeds of the IPO................................... $31,200
Underwriting discount....................................... (2,184)
Estimated expenses.......................................... (1,700)
Payment of dividend to Founding Practices................... (13,759)
Payment of long term debt assumed in the Merger and
Transfers................................................. (3,012)
Payment of consulting fees.................................. (900)
-------
Net cash received in Offering..................... $ 9,645
=======
</TABLE>
Deferred issuance costs of $210 are assumed to be paid with the
proceeds of the IPO as a component of the estimated expenses of $1,700.
(5) Reflects the J.C. Bradford & Co. warrant as a reduction of additional
paid in capital at an estimated fair value of $11.00 per share.
F-37
<PAGE> 86
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 21
Management............................ 30
Certain Transactions.................. 35
Principal Stockholders................ 40
Description of Capital Stock.......... 41
Shares Eligible for Future Sale....... 44
Plan of Distribution.................. 46
Legal Matters......................... 47
Experts............................... 47
Additional Information................ 47
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
2,500,000 SHARES
[ORTHALLIANCE LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
AUGUST 22, 1997
======================================================
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), a
corporation may indemnify any of its directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with a threatened,
pending or completed action, suit or proceeding brought against him by reason of
the fact that he is or was a director or officer (i) if any such person acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and (ii) in connection with any criminal
action or proceeding if such person had no reasonable cause to believe such
conduct was unlawful. In actions brought by or in the right of the corporation,
however, Section 145 provides that no indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable for negligence or misconduct in the performance of such person's duty
to the corporation unless, and only to the extent that, the Court of Chancery of
the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in review of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
The Certificate provides that no director of the Company shall be liable
for breach of fiduciary duty as a director except for (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) for willful or negligent violations of certain
provisions of the DGCL imposing certain requirements with respect to stock
repurchases, redemptions and dividends; or (iv) any transaction from which the
director derived an improper personal benefit. Pursuant to the Company's
Certificate and Bylaws, the Company is obligated to indemnify each of its
directors and officers to the fullest extent permitted by the DGCL. In addition,
the Bylaws allow the Company to purchase and maintain insurance on behalf of any
director or officer of the Company against any liability asserted against and
incurred by such director or officer, whether or not the Company would have the
power to indemnify such officer or director against such liability under the
provisions of the DGCL.
The Company intends to obtain insurance which provides general coverage for
its directors and executive officers in amounts to be determined. In addition,
the Company intends to obtain insurance coverage for its directors and executive
officers in amounts to be determined with respect to the IPO.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger between OrthAlliance, USOC and
Premier
2.2 -- Amended and Restated Form of Purchase and Sale Agreement
between OrthAlliance and Founding Practices.
2.3 -- Amended and Restated Form of Agreement and Plan of
Reorganization between OrthAlliance and Founding Practices.
2.4 -- Form of Stock Purchase and Sale Agreement between
OrthAlliance and Allied Orthodontists.
3.1 -- Amended and Restated Certificate of Incorporation of the
Company.
3.2 -- Amended and Restated Bylaws of the Company.
4.1 -- Form of certificate evidencing ownership of Common Stock of
the Company.
5.1 -- Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
regarding legality.
10.1 -- Amended and Restated Form of Service Agreement between
OrthAlliance and Founding Practices (Fixed Percentage Fee).
</TABLE>
II-1
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <C> <S>
10.2 -- Form of Service Agreement between OrthAlliance and Founding Practices (Variable Percentage Fee).
10.3 -- Amended and Restated Form of Consulting and Business Services Agreement between OrthAlliance and
Founding Practices (Variable Percentage Fee).
10.4 -- Form of Consulting and Business Services Agreement between OrthAlliance and Founding Practices (Fixed
Percentage Fee).
10.5 -- Form of Consulting and Business Services Agreement between OrthAlliance and Founding Practices (Fixed
Dollar Fee).
10.6 -- 1997 Non-Employee Director Stock Plan.
10.7 -- Amended and Restated 1997 Employee Stock Option Plan.
10.8 -- Employment Agreement between the Company and Sam Westover.
10.9 -- Consulting Agreement between the Company and Jonathan Wilfong.
10.10 -- Form of Employment Agreement between Allied Orthodontist and practice ownership entity.
10.11 -- Letter Agreement dated April 18, 1997 between the Company and Robert S. Chilton.
21.1 -- List of subsidiaries of OrthAlliance.
23.1 -- Consent of Nelson Mullins Riley & Scarborough, L.L.P. (contained in Exhibit 5.1 hereto).
23.2 -- Consent of Arthur Andersen LLP Independent Public Accountants.
24.1 -- Power of Attorney (included in signature page)
27.1 -- Financial Data Schedule (for SEC use only).
99.1 -- Consent of Drs. Durbin, Schmidt and Messrs. Ellis, McKnight and Summers to serve as directors.
</TABLE>
(b) Financial Statement Schedules
All schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the financial statements and notes hereto.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 89
3. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
4. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
5. Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
6. Every prospectus: (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
7. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
8. The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it become effective.
II-3
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Pre-effective Amendment No. 1 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Torrance, State of California, on August 22, 1997.
OrthAlliance, Inc.
By: /s/ SAM WESTOVER
------------------------------------
Sam Westover
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-effective Amendment No. 1 to Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Each person whose signature to this Registration Statement appears below hereby
constitutes and appoints Sam Westover and Jonathan E. Wilfong, and each of them,
as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his or her behalf individually and in any and all
capacities and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Registration Statement and any
registration statement relating to the same Offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and any and all instruments or documents filed as part of or in
connection with this Registration Statement, the amendments thereto or a related
registration statement pursuant to Rule 462(b), and each of the undersigned does
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitutes, may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ SAM WESTOVER Chief Executive Officer, August 22, 1997
- ----------------------------------------------------- President and Director
Sam Westover (principal executive
officer)
/s/ ROBERT S. CHILTON Chief Financial Officer August 22, 1997
- ----------------------------------------------------- (principal financial and
Robert S. Chilton accounting officer)
/s/ JONATHAN E. WILFONG* Director August 22, 1997
- -----------------------------------------------------
Jonathan E. Wilfong
Director
- -----------------------------------------------------
Randall K. Bennett, D.D.S.
</TABLE>
- ---------------
* Signed by Sam Westover pursuant to Power of Attorney previously filed.
II-4
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Merger between OrthAlliance, USOC and
Premier dated May 13, 1997. ................................
2.2 -- Amended and Restated Form of Purchase and Sale Agreement
between OrthAlliance and Founding Practices. ...............
2.3 -- Amended and Restated Form of Agreement and Plan of
Reorganization between OrthAlliance and Founding
Practices. .................................................
2.4 -- Form of Stock Purchase and Sale Agreement between
OrthAlliance and Allied Orthodontists. .....................
3.1 -- Amended and Restated Certificate of Incorporation of the
Company. ...................................................
3.2 -- Amended and Restated Bylaws of the Company. ................
4.1 -- Form of certificate evidencing ownership of Common Stock of
the Company. ...............................................
5.1 -- Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
regarding legality. ........................................
10.1 -- Amended and Restated Form of Service Agreement between
OrthAlliance and Founding Practices (Fixed Percentage
Fee). ......................................................
10.2 -- Form of Service Agreement between OrthAlliance and Founding
Practices (Variable Percentage Fee). .......................
10.3 -- Amended and Restated Form of Consulting and Business
Services Agreement between OrthAlliance and Founding
Practices (Variable Percentage Fee). .......................
10.4 -- Form of Consulting and Business Services Agreement between
OrthAlliance and Founding Practices (Fixed Percentage
Fee). ......................................................
10.5 -- Form of Consulting and Business Services Agreement between
OrthAlliance and Founding Practices (Fixed Dollar Fee). ....
10.6 -- 1997 Non-Employee Director Stock Plan. .....................
10.7 -- Amended and Restated 1997 Employee Stock Option Plan. ......
10.8 -- Employment Agreement between the Company and Sam
Westover. ..................................................
10.9 -- Consulting Agreement between the Company and Jonathan
Wilfong. ...................................................
10.10 -- Form of Employment Agreement between Allied Orthodontist and
practice ownership entity. .................................
10.11 -- Letter Agreement dated April 18, 1997 between the Company
and Robert S. Chilton. .....................................
21.1 -- List of subsidiaries of OrthAlliance. ......................
23.1 -- Consent of Nelson Mullins Riley & Scarborough, L.L.P.
(contained in Exhibit 5.1 hereto). .........................
23.2 -- Consent of Arthur Andersen L.L.P. Independent Public
Accountants. ...............................................
24.1 -- Power of Attorney (included in signature page)..............
27.1 -- Financial Data Schedule (for SEC use only)..................
99.1 -- Consent of Drs. Durbin and Schmidt and Messrs. Ellis,
McKnight and Summers to serve as directors. ................
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BETWEEN
ORTHALLIANCE, INC.
AND
US ORTHODONTIC CARE, INC.
AND
PREMIER ORTHODONTIC GROUP, INC.
MAY 13, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. DEFINITIONS................................................................................... 1
2. THE MERGER.................................................................................... 4
(a) General.............................................................................. 4
(b) The Closing.......................................................................... 4
(c) Actions at the Closing............................................................... 4
(d) Effect of Merger..................................................................... 4
(i) General..................................................................... 4
(ii) Certificate of Incorporation................................................ 4
(iii) Bylaws................................................................. 5
(iv) Directors and Officers...................................................... 5
(v) Conversion of Target Company Shares......................................... 5
(vi) Conversion of Target Company
Options and Warrants....................................................... 5
(e) Procedure for Payment................................................................ 6
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET COMPANIES........................................ 6
(a) Representations and Warranties of USOC............................................... 6
(i) Organization, Qualification, and Corporate
Power....................................................................... 6
(ii) Capitalization.............................................................. 6
(iii) Authorization of Transaction........................................ 7
(iv) Noncontravention............................................................ 7
(v) Financial Statements........................................................ 7
(vi) Events Subsequent to Financial Statements................................... 7
(vii) Undisclosed Liabilities............................................. 8
(viii) Continuity of Business Enterprise................................... 8
(ix) Brokers' Fees............................................................... 8
(x) Material Contracts.......................................................... 8
(b) Representations and Warranties of Premier............................................ 9
(i) Organization, Qualification, and Corporate
Power....................................................................... 9
(ii) Capitalization.............................................................. 9
(iii) Authorization of Transaction........................................ 9
(iv) Noncontravention............................................................ 9
(v) Financial Statements........................................................ 10
(vi) Events Subsequent to Financial Statements................................... 10
(vii) Undisclosed Liabilities............................................ 11
(viii) Continuity of Business Enterprise.................................. 11
(ix) Brokers' Fees............................................................... 11
(x) Material Contracts.......................................................... 11
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER................................................... 11
(a) Organization......................................................................... 12
(b) Capitalization....................................................................... 12
(c) Operating History.................................................................... 12
(d) Authorization of Transaction......................................................... 12
(e) Noncontravention..................................................................... 12
(f) Brokers' Fees........................................................................ 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5. COVENANTS..................................................................................... 12
(a) General.............................................................................. 13
(b) Notices and Consents................................................................. 13
(c) Regulatory Matters and Approvals..................................................... 13
(i) Delaware General Corporation Law............................................ 13
(ii) Georgia Business Corporation Code........................................... 13
(d) Operation of Business................................................................ 13
(e) Full Access.......................................................................... 14
(f) Notice of Developments............................................................... 14
(g) Insurance and Indemnification........................................................ 14
6. CONDITIONS TO OBLIGATION TO CLOSE............................................................. 15
(a) Conditions to Obligation of the Buyer................................................ 15
(b) Conditions to Obligation of the Target Companies..................................... 16
7. TERMINATION................................................................................... 17
(a) Termination of Agreement............................................................. 17
(b) Effect of Termination................................................................ 18
8. MISCELLANEOUS................................................................................. 18
(a) Survival............................................................................. 18
(b) Press Releases and Public Announcements.............................................. 18
(c) No Third Party Beneficiaries......................................................... 18
(d) Entire Agreement..................................................................... 18
(e) Succession and Assignment............................................................ 18
(f) Counterparts......................................................................... 18
(g) Headings............................................................................. 19
(h) Notices.............................................................................. 19
(i) Governing Law........................................................................ 19
(j) Amendments and Waivers............................................................... 20
(k) Severability......................................................................... 20
(l) Expenses............................................................................. 20
(m) Construction......................................................................... 20
(n) Incorporation of Exhibits and Schedules.............................................. 21
</TABLE>
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
This Agreement is entered into as of May 13, 1997 by and between
OrthAlliance, Inc., a Delaware corporation (the "Buyer"), and US Orthodontic
Care, Inc., a Georgia corporation ("USOC") and Premier Orthodontic Group, Inc.
("Premier"). The Buyer, USOC and Premier are referred to collectively herein as
the "Parties". USOC and Premier are sometimes referred to jointly as the Target
Companies or in the singular as a Target Company.
WHEREAS, this Agreement contemplates a tax-free merger of the Target
Companies with and into the Buyer in a reorganization pursuant to Internal
Revenue Code ss. 368(a)(1)(A), under which the Stockholders of the Target
Companies will receive capital stock in the Buyer in exchange for their capital
stock in the Target Companies.
WHEREAS, the Parties expect that the Merger will further certain of
their business objectives including, without limitation, (i) combination of the
management or consulting rights to, and certain operating rights of, numerous,
separate orthodontic practices located throughout the United States; and (ii)
acquisition, development and management or, where dowered party management of
orthodontic practices is prohibited by state law or regulation, provision of
consulting services to, additional orthodontic practices on a national basis.
WHEREAS, the Boards of Directors of Buyer and each of the Target
Companies contemplate that the mergers of each Target Company with the Buyer,
together with the acquisition of the founding practices (the "Acquisition") and
the Initial Public Offering (the "IPO"), will constitute an integrated unitary
transaction that qualifies as a tax free transfer of property under Section 351
of the Internal Revenue Code.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"BUYER" has the meaning set forth in the preface above.
"BUYER-OWNED SHARE" means any Share of a Target Company that the Buyer
owns beneficially.
"BUYER SHARE" means any share of voting capital stock of the
Buyer.
<PAGE> 5
"CERTIFICATE OF MERGER" has the meaning set forth in ss. 2(c)
below.
"CLOSING" has the meaning set forth in ss. 2(b) below.
"CLOSING DATE" has the meaning set forth in ss. 2(b) below.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Target Companies that is not already generally
available to the public.
"DELAWARE GENERAL CORPORATION LAW" means the General
Corporation Law of the State of Delaware, as amended.
"DISCLOSURE SCHEDULE" has the meaning set forth in ss. 3(a)
below.
"DISSENTING SHARE" means any Target Company Share which any Target
Company Stockholder, who or which has exercised his or its appraisal rights
under state law, holds of record.
"EFFECTIVE TIME" has the meaning set forth in ss. 2(d)(i) below.
"FOUNDING PRACTICE" means any practice identified by Premier or USOC,
or both, on Exhibits attached to the Letter of Intent between Premier and USOC
dated January 17, 1997.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means actual knowledge without independent
investigation.
"MERGER" has the meaning set forth in ss. 2(a) below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company, an unincorporated organization, or a governmental entity (or
any department, agency, or political subdivision thereof).
"PRO FORMA SERVICE FEE INCOME" means the amount that would have been
payable by a Founding Practice or Practices in calendar year 1996 if the
Service Fee had been paid to Buyer based on adjusted gross revenues and
operating results for such Founding Practice(s) during the twelve months ended
on December 31, 1996.
2
<PAGE> 6
"REGISTRATION STATEMENT" shall mean the registration statement of
Buyer to be filed on Form S-1 under the Securities Act relating to the offering
and issuance of Buyer Shares.
"REQUISITE BUYER STOCKHOLDER APPROVAL" means the affirmative vote of
the holders of a majority of the Buyer Shares in favor of this Agreement and
the Merger.
"REQUISITE TARGET COMPANY STOCKHOLDER APPROVAL" means the affirmative
vote of the holders of a majority of the Target Shares in favor of this
Agreement and the Merger.
"SEC" means The Securities and Exchange Commission.
"SECURITIES ACT" means The Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means The Securities Exchange Act of
1934, as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes
that the taxpayer is contesting in good faith through appropriate proceedings,
(c) purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"SPECIAL BUYER MEETING" has the meaning set forth in ss. 5(c)(i)
below.
"SPECIAL TARGET COMPANY MEETING" has the meaning set forth in
ss. 5(c)(i) below.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"SURVIVING CORPORATION" has the meaning set forth in ss. 2(a)
below.
"TARGET COMPANY" has the meaning set forth in the preface
above.
"TARGET COMPANY SHARE" means any share of the Common Stock of either
of the Target Companies.
"TARGET COMPANY STOCKHOLDER" means any Person who or which
holds any Target Shares.
3
<PAGE> 7
2. THE MERGER.
(a) GENERAL. On and subject to the terms and conditions of this
Agreement, the Target Companies will merge with and into the Buyer (the
"Merger") at the Effective Time. The Buyer shall be the corporation surviving
the Merger (the "Surviving Corporation").
(b) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Nelson Mullins
Riley & Scarborough L.L.P. in Atlanta, Georgia, commencing at 9:00 a.m. local
time on the second business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the
Parties may mutually determine (the "Closing Date").
(c) ACTIONS AT THE CLOSING. At the Closing, (i) the Target Companies
will deliver to the Buyer the various certificates, instruments, documents and
approvals referred to in ss. 6(a) below, (ii) the Buyer will deliver to the
Target Companies the various certificates, instruments, documents and approvals
referred to in ss. 6(b) below, (iii) the Buyer and the Target Companies will
file with the Secretary of State of the State of Delaware a Certificate of
Merger in the form attached hereto as Exhibit B (the "Certificate of Merger"),
(iv) the Buyer and USOC will file with the Secretary of State of the State of
Georgia a Certificate of Merger in the form attached hereto as Exhibit B-1 (the
"Georgia Certificate of Merger"), and (v) the Buyer will deliver to the Target
Company Stockholders in the manner provided below certificates evidencing the
Buyer Shares issued in the Merger.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time
(the "Effective Time") the Buyer and the Target Companies file both
the Certificate of Merger with the Secretary of State of the State of
Delaware and the Georgia Certificate of Merger with the Secretary of
State of Georgia. The Merger shall have the effect set forth in the
Delaware General Corporation Law. The Buyer may, at any time after the
Effective Time, take any action (including executing and delivering
any document) in the name and on behalf of either the Buyer or the
Target Companies in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Buyer in effect at and as of the Effective Time
will remain the Certificate of Incorporation of the Surviving
Corporation without any modification or amendment in the Merger.
4
<PAGE> 8
(iii) BYLAWS. The Bylaws of the Buyer in effect at and as of
the Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment in the Merger.
(iv) DIRECTORS AND OFFICERS. The Board of Directors of the
Buyer consists of the following persons who shall serve in accordance
with the Bylaws of the Buyer until their successors are elected and
qualified:
Sam Westover
Randall K. Bennett, D.D.S.
Jonathan E. Wilfong
Following the Merger, and at the Effective Time of the
Company's IPO, the following persons shall become additional members
of the Board of Directors:
Douglas D. Durbin, D.M.D., M.S.D
Randall A. Schmidt, D.D.S., M.S.D
The officers of the Buyer following the Merger, and at the
Effective Time of the Company's IPO, shall consist of the following
who shall serve in accordance with the Bylaws of the Buyer until their
successors are elected and qualified:
Sam Westover, President and Chief Executive Officer
Paul Hayase, Senior Vice-President-Human Resources,
General Counsel and Secretary
P. Craig Hethcox, Chief Operating Officer
Robert S. Chilton, Chief Financial Officer
(v) CONVERSION OF TARGET COMPANY SHARES. At the Effective
Time of the Merger, subject to the approval of a committee appointed
by each Target Company's board of directors, all shares of capital
stock of each of the Target Companies issued and outstanding
immediately prior to the Effective Time shall be converted into a
number of Buyer's Shares equal to the total market capitalization of
Buyer after the IPO reduced by (i) the Buyer's Shares issued to the
public pursuant to the IPO, and (ii) the Buyer's Shares issued
pursuant to the Acquisitions (the "Merger Shares"), which shall be
divided between the USOC Shareholders and the Premier Shareholders in
accordance with the following:
(1) All of the shares of common stock of USOC shall
be converted into the right to receive seventy percent (70%)
of the total number of Merger Shares;
(2) All of the shares of common stock of Premier
shall be converted into the right to receive thirty percent
(30%) of the total number of Merger Shares, including the one
share of Buyer's Shares outstanding on the date of this
Agreement.
5
<PAGE> 9
(vi) CONVERSION OF TARGET COMPANY OPTIONS AND WARRANTS. At
the Effective Time of the Merger, all options and warrants of the
Target Companies issued and outstanding immediately prior to the
Effective Time shall be converted to that number of options or
warrants to purchase Buyer's Shares as are necessary to distribute to
the parties entitled to the options and warrants set forth in the
Disclosure Schedule.
(e) PROCEDURE FOR PAYMENT.
(i) Immediately after the Effective Time, the Buyer will
furnish to the Target Company Stockholders of each respective Target
Company stock certificates representing that number of Buyer Shares
set forth in paragraph 2(d)(v) above.
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET COMPANIES.
(a) REPRESENTATIONS AND WARRANTIES OF USOC. USOC represents and
warrants to the Buyer that the statements contained in this ss. 3 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss. 3), except as
set forth in the disclosure schedule accompanying this Agreement and initialed
by the Parties (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this ss. 3(a).
(i) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. USOC is
a corporation duly organized, validly existing, and in good standing
under the laws of the State of Georgia. USOC is duly authorized to
conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required, except where the
lack of such qualification would not have a material adverse effect on
the financial condition of USOC taken as a whole. USOC has full
corporate power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it.
(ii) CAPITALIZATION. The entire authorized capital stock of
USOC consists of 10,000,000 Target Company Shares, of which 2,471,714
Target Company Shares are issued and outstanding. All of the issued
and outstanding Target Company Shares have been duly authorized and
are validly issued, fully paid, and nonassessable. Except as set forth
on the Disclosure Schedule, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could
require USOC to issue, sell, or otherwise cause to become outstanding
any of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights
with respect to USOC. The Disclosure Schedule sets forth an accurate
list of USOC's shareholders, including the address (including state of
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<PAGE> 10
residence), the number of shares, options and warrants held, the class
of shares and, for options and warrants, the applicable strike price,
term, and the number of shares covered by such options or warrants.
(iii) AUTHORIZATION OF TRANSACTION. USOC has full power and
authority (including full corporate power and authority) to execute
and deliver this Agreement; however, USOC cannot consummate the Merger
unless and until it receives the Requisite Target Company Stockholder
Approval.
(iv) NONCONTRAVENTION. To the Knowledge of any director or
officer of USOC, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
USOC is subject or any provision of the charter or bylaws of USOC or
(ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument or other
arrangement to which USOC is a party or by which USOC is bound or to
which any of its assets are subject (or result in the imposition of
any Security Interest upon any of its assets), except where the
violation, conflict, breach, default, acceleration, termination,
modification, cancellation, failure to give notice, or Security
Interest would not have a material adverse effect on the financial
condition of USOC taken as a whole or on the ability of the Parties to
consummate the transactions contemplated by this Agreement. To the
Knowledge of any director or officer of USOC, USOC does not need to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order
for the Parties to consummate the transactions contemplated by this
Agreement.
(v) FINANCIAL STATEMENTS. USOC's audited financial statements
for the period ended December 31, 1996 are attached as Exhibit 3(a)(v)
to the Disclosure Schedule ("Financial Statements"). The Financial
Statements (including the related notes and schedules) have been
prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the financial
condition of USOC as of the indicated dates and the results of
operations of USOC for the indicated periods, are correct and complete
in all respects, are consistent with the books and records of USOC,
and are certified by, and accompanied with, the opinion of Arthur
Andersen L.L.P., USOC's independent, certified public accountant.
7
<PAGE> 11
(vi) EVENTS SUBSEQUENT TO FINANCIAL STATEMENTS. Since the
date of the Financial Statements, there has not been any material
adverse change in the financial condition of USOC taken as a whole.
Exhibit 3(a)(vi) contains the unaudited balance sheet, statement of
income and statement of changes in financial position for and as of
the three month period ended March 31, 1997, certified by the Chief
Executive Officer of USOC to disclose all assets and liabilities of
USOC and to present fairly the financial condition of USOC and the
results of their operations and changes in their financial position
for the three month period then ended, in conformity with generally
accepted accounting principles applied on a basis consistent with that
of the preceding year as of the date thereof (the "Interim Financial
Statements").
(vii) UNDISCLOSED LIABILITIES. Except as described in the
Financial Statements, the Interim Financial Statements and the
Disclosure Schedule, USOC does not have any liability (whether known
or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any
liability for taxes, except for (i) liabilities set forth on the face
of the balance sheet contained in the Financial Statements, or in any
notes thereto, (ii) liabilities which have arisen after the date of
the Financial Statements in the Ordinary Course of Business (none of
which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law) and which are disclosed in the
Interim Financial Statements, and (iii) pending and threatened
litigation described in the Disclosure Schedule.
(viii) CONTINUITY OF BUSINESS ENTERPRISE. USOC
operates at least one significant historic business line, or
owns at least a significant portion of its historic business
assets, in each case within the meaning of Reg. ss. 1.368-1d.
(ix) BROKERS' FEES. USOC does not have any liability or
obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated
by this Agreement.
(x) MATERIAL CONTRACTS. USOC has listed on Schedule 3(a)
(x) to the Disclosure Schedule all material contracts, commitments and
similar agreements to which USOC is a party or by which it is bound,
including, but not limited to, contracts with Founding Orthodontists
and their affiliated professional corporations and other affiliated
entities, contracts with significant customers, joint venture or
partnership agreements, contracts with any labor organizations,
strategic alliances, loan agreements, indemnity or guaranty
agreements, bonds, mortgages, options to purchase land, liens, pledges
or other security agreements, and licenses for software or other
8
<PAGE> 12
intellectual property. USOC has delivered true, complete and correct
copies of such agreements to Buyer. USOC is not in default under any
contracts or agreements and no notice of default under any such
contract or agreement has been received which default would have a
material adverse effect on the operation or financial condition of
Buyer.
(b) REPRESENTATIONS AND WARRANTIES OF PREMIER. Premier represents and
warrants to the Buyer that the statements contained in this ss. 3 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss. 3), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the lettered and numbered paragraphs contained
in this ss. 3(b).
(i) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Premier
is a corporation duly organized, validly existing, and in good
standing under the laws of the state of Delaware. Premier is duly
authorized to conduct business and is in good standing under the laws
of each jurisdiction where such qualification is required, except
where the lack of such qualification would not have a material adverse
effect on the financial condition of Premier. Premier has full
corporate power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it.
(ii) CAPITALIZATION. The entire authorized capital stock of
Premier consists of 3,000 Target Company Shares, of which 100 Target
Company Shares are issued and outstanding. All of the issued and
outstanding Target Company Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. Except as set forth on
the Disclosure Schedule, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could
require Premier to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to Premier. The Disclosure Schedule sets
forth an accurate list of Premier's shareholders, including the
address (including state of residence), the number of shares, options
and warrants held, the class of shares and, for options and warrants,
the applicable strike price, term, and the number of shares covered by
such options or warrants.
(iii) AUTHORIZATION OF TRANSACTION. Premier has full power
and authority (including full corporate power and authority) to
execute and deliver this Agreement; however, Premier cannot consummate
the Merger unless and until it receives the Requisite Target Company
Stockholder Approval.
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<PAGE> 13
(iv) NONCONTRAVENTION. To the Knowledge of any director or
officer of Premier, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
Premier is subject or any provision of the charter or bylaws of
Premier or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or
other arrangement to which Premier is a party or by which Premier is
bound or to which any of its assets are subject (or result in the
imposition of any Security Interest upon any of its assets), except
where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or
Security Interest would not have a material adverse effect on the
financial condition of Premier taken as a whole or on the ability of
the Parties to consummate the transactions contemplated by this
Agreement. To the Knowledge of any director or officer of Premier,
Premier does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(v) FINANCIAL STATEMENTS. Premier's audited financial
statements for the period ended December 31, 1996 are attached as
Exhibit 3(b)(v) to the Disclosure Schedule ("Financial Statements").
The Financial Statements (including the related notes and schedules)
have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the
financial condition of Premier as of the indicated dates and the
results of operations of Premier for the indicated periods, are
correct and complete in all respects, are consistent with the books
and records of Premier, and are certified by, and accompanied with,
the opinion of Arthur Andersen L.L.P., Premier's independent,
certified public accountant.
(vi) EVENTS SUBSEQUENT TO FINANCIAL STATEMENTS. Since the
date of the Financial Statements, there has not been any material
adverse change in the financial condition of Premier taken as a whole.
Exhibit 3(b)(vi) contains the unaudited balance sheet, statement of
income and statement of changes in financial position for and as of
the three month period ended March 31, 1997 certified by the Chief
Executive Officer of Premier to disclose all assets and liabilities of
Premier and to present fairly the financial condition of Premier and
the results of their operations and changes in their financial
position for the three month period then ended, in conformity with
generally accepted accounting principles applied on a
10
<PAGE> 14
basis consistent with that of the preceding year as of the date
thereof (the "Interim Financial Statements").
(vii) UNDISCLOSED LIABILITIES. Except as described in the
Financial Statements, the Interim Financial Statements and the
Disclosure Schedule, Premier does not have any liability (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any
liability for taxes, except for (i) liabilities set forth on the face
of the balance sheet contained in the Financial Statements, or in any
notes thereto, (ii) liabilities which have arisen after the date of
the Financial Statements in the Ordinary Course of Business (none of
which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law) and which are disclosed in the
Interim Financial Statements, and (iii) pending and threatened
litigation described in the Disclosure Schedule.
(viii) CONTINUITY OF BUSINESS ENTERPRISE. Premier
operates at least one significant historic business line, or
owns at least a significant portion of its historic business
assets, in each case within the meaning of Reg. ss. 1.368-1d.
(ix) BROKERS' FEES. Premier does not have any liability
or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated
by this Agreement.
(x) MATERIAL CONTRACTS. Premier has listed on Schedule
3(b)(x) to the Disclosure Schedule all material contracts, commitments
and similar agreements to which Premier is a party or by which it is
bound, including, but not limited to, contracts with Founding
Orthodontists and their affiliated professional corporations and other
affiliated entities, contracts with significant customers, joint
venture or partnership agreements, contracts with any labor
organizations, strategic alliances, loan agreements, indemnity or
guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements, and licenses for software
or other intellectual property. Premier has delivered true, complete
and correct copies of such agreements to Buyer. Premier is not in
default under any contracts or agreements and no notice of default
under any such contract or agreement has been received which default
would have a material adverse effect on the operation or financial
condition of Buyer.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Target Companies that the statements
contained in this ss. 4 are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing
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<PAGE> 15
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this ss. 4), except as set forth in the
Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this ss. 4.
(a) ORGANIZATION. The Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) CAPITALIZATION. The entire authorized capital stock of the Buyer
consists of 3,000 Buyer Shares, of which 1 Buyer Share is issued and
outstanding. At the time of the Merger, all of the Buyer Shares to be issued in
the Merger will have been duly authorized.
(c) OPERATING HISTORY. Buyer is a newly formed entity that has no
operating history.
(d) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to
execute and deliver this Agreement.
(e) NONCONTRAVENTION. To the Knowledge of any director or officer of
the Buyer, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of the charter or bylaws
of the Buyer or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets are
subject, except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, or failure to give notice would not
have a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement. To the Knowledge of any director
or officer of the Buyer, the Delaware General Corporation Law, the Securities
Exchange Act, the Securities Act, and the state securities laws, the Buyer does
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(f) BROKERS' FEES. The Buyer does not have any liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which any of the Target
Companies could become liable or obligated.
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<PAGE> 16
5. COVENANTS. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in
order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in ss. 6 below).
(b) NOTICES AND CONSENTS. The Target Companies will give any notices
to third parties, and will use their reasonable best efforts to obtain any
third party consents, that the Buyer reasonably may request in connection with
the matters referred to in ss. 3(a)(iii) and ss. 3(b)(iii) above.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will give
any notices to, make any filings with, and use its reasonable best efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in ss.
3(a)(iii) and ss. 3(b)(iii) and ss. 4(d) above. Without limiting the generality
of the foregoing:
(i) DELAWARE GENERAL CORPORATION LAW. Premier will call a
special meeting of its stockholders (a "Special Target Company
Meeting") as soon as reasonably practicable in order that Premier
stockholders may consider and vote upon the adoption of this Agreement
and the approval of the Merger in accordance with the Delaware General
Corporation Law. The Buyer will obtain the necessary consent of its
stockholders or will call a special meeting of its stockholders (the
"Special Buyer Meeting") as soon as reasonably practicable in order
that the stockholders may consider and vote upon the adoption of this
Agreement and the approval of the Merger in accordance with the
Delaware General Corporation Law.
(ii) GEORGIA BUSINESS CORPORATION CODE. USOC will obtain the
necessary consent of its stockholders or will call a Special Target
Company Meeting as soon as reasonably practicable in order that USOC's
stockholders may consider and vote upon the adoption of this Agreement
and the approval of the Merger in accordance with the Georgia Business
Corporation Code.
(d) OPERATION OF BUSINESS. The Target Companies will not engage
in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the
generality of the foregoing:
(i) neither of the Target Companies will authorize or
effect any change in its charter or bylaws;
(ii) neither of the Target Companies will grant any
options, warrants, or other rights to purchase or obtain any
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<PAGE> 17
of its capital stock or issue, sell, or otherwise dispose of any of
its capital stock (except upon the conversion or exercise of options,
warrants, and other rights currently outstanding and listed in the
Disclosure Schedule);
(iii) neither of the Target Companies will declare, set
aside, or pay any dividend or distribution with respect to its capital
stock (whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of its capital stock, in either case outside the
Ordinary Course of Business;
(iv) neither of the Target Companies will issue any note,
bond, or other debt security or create, incur, assume, or guarantee
any indebtedness for borrowed money or capitalized lease obligation
outside the Ordinary Course of Business;
(v) neither of the Target Companies will impose any Security
Interest upon any of its assets outside the Ordinary Course of
Business;
(vi) neither of the Target Companies will make any capital
investment in, make any loan to, or acquire the securities or assets
of any other Person outside the Ordinary Course of Business;
(vii) neither of the Target Companies will make any change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business; and
(viii) neither of the Target Companies will commit to any of
the foregoing.
(e) FULL ACCESS. The Target Companies will permit representatives of
the Buyer to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the Target Companies to
all premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to the Target Companies. The Buyer
will treat and hold as such any Confidential Information it receives from
either of the Target Companies in the course of the reviews contemplated by
this ss. 5(e), will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, Buyer agrees to return to the Target Companies all tangible
embodiments (and all copies) thereof which are in its possession.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice
to the other of any material adverse development causing a breach of any of its
own representations and warranties in ss. 3 and ss. 4 above. No disclosure by
any Party pursuant to this ss. 5(f), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
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(g) INSURANCE AND INDEMNIFICATION.
(i) The Buyer will provide each individual who served as a
director or officer of either of the Target Companies at any time
prior to the Effective Time with liability insurance for a period of
24 months after the Effective Time no less favorable in coverage and
amount than any applicable insurance in effect immediately prior to
the Effective Time.
(ii) The Buyer, as the Surviving Corporation in the Merger,
will observe any indemnification provisions now existing in the
certificate of incorporation or bylaws of the Target Companies for the
benefit of any individual who served as a director or officer of the
Target Companies at any time prior to the Effective Time.
(iii) The Buyer will indemnify each individual who served as
a director or officer of the Target Companies at any time prior to the
Effective Time from and against any and all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement,
liabilities, obligations, taxes, liens, losses, expenses, and fees,
including all court costs and reasonable attorneys' fees and expenses,
resulting from, arising out of, relating to, in the nature of, or
caused by this Agreement or any of the transactions contemplated
herein.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the
following conditions:
(i) this Agreement and the Merger shall have received the
Requisite Target Company Stockholder Approval and the number of
Dissenting Shares shall not exceed twenty percent (20%) of the number
of outstanding Target Company Shares;
(ii) the Target Companies shall have procured all of the
third party consents specified in ss. 5(b) above;
(iii) the representations and warranties set forth in
ss. 3 above shall be true and correct in all material respects
at and as of the Closing Date;
(iv) the Target Companies have performed and complied
with all of their covenants hereunder in all material respects
through the Closing Date;
(v) there shall not be any judgment, order, decree,
stipulation, injunction, or charge in effect preventing
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<PAGE> 19
consummation of any of the transactions contemplated by this
Agreement;
(vi) each of the Target Companies shall have delivered to the
Buyer a certificate to the effect that each of the conditions
specified above in ss. 6(a)(i)-(v) is satisfied with respect to that
Target Company;
(vii) this Agreement and the Merger shall have
received the Requisite Buyer Stockholder Approval;
(viii) the Registration Statement of the Buyer shall
have become effective under the Securities Act;
(ix) all actions to be taken by the Target Companies in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this ss. 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE TARGET COMPANIES. The obligation
of the Target Companies to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) this Agreement and the Merger shall have received the
Requisite Buyer Stockholder Approval;
(ii) the Registration Statement shall have become effective
under the Securities Act;
(iii) the representations and warranties set forth in
ss. 4 above shall be true and correct in all material respects
at and as of the Closing Date;
(iv) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(v) there shall not be any judgment, order, stipulation,
injunction, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement.
(vi) the Buyer shall have delivered to the Target Companies a
certificate to the effect that each of the conditions specified above
in ss. 6(b)(i)-(v) is satisfied in all respects;
(vii) this Agreement and the Merger shall have received
the Requisite Target Company Stockholder Approval;
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<PAGE> 20
(viii) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Target Companies.
The Target Companies may waive any condition specified in this ss.
6(b) if such waiver is executed in writing so stating at or prior to the
Closing.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. Any of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether
before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Target Companies at any time prior to the Effective Time
(A) in the event that the Target Companies have breached any material
representation, warranty, or covenant contained in this Agreement in
any material respect, the Buyer has notified the Target Companies of
the breach, and the breach has continued without cure for a period of
twenty (20) days after the notice of breach or (B) if the Closing
shall not have occurred on or before December 31, 1997, by reason of
the failure of any condition precedent under ss. 6(a) hereof (unless
the failure results primarily from the Buyer's breaching any
representation, warranty, or covenant contained in this Agreement);
(iii) the Target Companies, or either of them, may terminate
this Agreement by giving written notice to the Buyer at any time prior
to the Effective Time (A) in the event the Buyer has breached any
material representation, warranty, or covenant contained in this
Agreement in any material respect, the Target Companies have notified
the Buyer of the breach, and the breach has continued without cure for
a period of twenty (20) days after the notice of breach or (B) if the
Closing shall not have occurred on or before December 31, 1997, by
reason of the failure of any condition precedent under ss. 6(b) hereof
(unless the failure results primarily from the Target Companies'
breaching any representation, warranty, or covenant contained in this
Agreement);
(iv) any Party may terminate this Agreement by giving written
notice to the other Party at any time after the Special Buyer Meeting
or the Special Target Company Meetings in the event this Agreement and
the Merger fail to receive the
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<PAGE> 21
Requisite Buyer Stockholder Approval or the Requisite Target
Company Stockholder Approval respectively.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to ss. 7(a) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in ss. 5(e) above shall survive any such
termination.
8. MISCELLANEOUS.
(a) SURVIVAL. None of the representations, warranties, and covenants
of the Parties (other than the provisions in ss. 2 above concerning issuance of
the Buyer Shares, the provisions contained in ss. 5(g) above concerning
insurance and indemnification, and the provisions of ss. 3(a)(viii) and ss.
3(b)(viii) concerning certain requirements for a tax free reorganization, will
survive the Effective Time.
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party.
(c) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions in
ss. 2 above concerning issuance of the Buyer Shares, and the provisions of ss.
3(a)(viii) and ss. 3(b)(viii) concerning certain requirements for a tax free
merger, are intended for the benefit of the Target Companies' Stockholders and
(ii) the provisions in ss. 5(h) above concerning insurance and indemnification
are intended for the benefit of the individuals specified therein and their
respective legal representatives.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent that they related in any way to the
subject matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party.
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(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) 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.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Premier: Sam Westover
Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard
Suite 200
Torrance, California 90505
Copy to: Paul H. Hayase
Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard
Suite 200
Torrance, California 90505
If to USOC: R.N. Pickron, D.D.S.
US Orthodontic Care, Inc.
3294 Medlock Bridge Road
Norcross, Georgia 30092
Copy to: W. Dennis Summers
Roberts, Isaf & Summers
1100 Abernathy Road, N.E.
Suite 1100
Atlanta, Georgia 30328
If to the Buyer: Sam Westover
Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard
Suite 200
Torrance, California 90505
Jonathan E. Wilfong
US Orthodontic Care, Inc.
3294 Medlock Bridge Road
Norcross, Georgia 30092
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Copy to: Paul A. Quiros, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
400 Colony Square
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Party notice in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
(j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Delaware General Corporation Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the Parties. No waiver by any Party
of any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event that
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<PAGE> 24
an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the Parties and no presumption or
burden of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context
otherwise requires. The word "including" shall mean including without
limitation.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein
by reference and made a part hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
ORTHALLIANCE, INC.
By:/S/ Sam Westover
-------------------------------------
Its: President
Attest:/S/ Paul H. Hayase
----------------------------------
Its: Secretary
PREMIER ORTHODONTIC GROUP, INC.
By:/S/ Sam Westover
--------------------------------------
Its: President
Attest:/S/ Paul H. Hayase
----------------------------------
Its: Secretary
US ORTHODONTIC CARE, INC.
By:/S/ R.N. Pickron
--------------------------------------
Its: President
Attest:/S/ R.N. Pickron
----------------------------------
Its: Secretary
21
<PAGE> 1
EXHIBIT 2.2
AMENDED AND RESTATED
FORM OF
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered
into as of this _____ day of ____________, 1997, by and between Premier
Orthodontic Group, Inc., a Delaware corporation, and its successors and assigns
(hereinafter referred to as "Purchaser") and _________________________________,
a Florida ________________________ (hereinafter referred to as "Seller").
W I T N E S S E T H
WHEREAS, Seller owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit "A" (collectively, the "Center")
and furnishes orthodontic and other dental care to the general public through
the services of the orthodontist(s) and dentist(s) affiliated with the Seller to
provide patient care at the Center (the "Orthodontist(s)"); and
WHEREAS, Seller wishes to sell all of its right, title and interest in
and to all of the assets used in connection with the orthodontic practice
conducted at the Center (except for the right to employ the Orthodontist(s)) to
Purchaser and Purchaser wishes to buy all of Seller's right, title and interest
in and to such assets, subject to and upon the terms and conditions herein set
forth.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00), the premises
and the mutual covenants herein contained, and other good and valuable
consideration, the receipt, adequacy, and sufficiency of which are hereby
acknowledged, Seller and Purchaser hereby agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS AND CLOSING.
1.01 PURCHASE. Upon the terms and conditions set forth herein,
Seller shall sell to Purchaser and Purchaser shall purchase from Seller all of
Seller's right, title and interest in and to:
(a) Seller's leasehold interest in and to that certain
facility comprising the Center, and all dental and other equipment or furniture
leased by Seller (the "Leasehold Interest"); provided, however, that (i) Seller
shall have the option of excluding from the conveyance contemplated hereby
Seller's leasehold interest in such dental and other equipment (including any
leased automobiles) or furniture and (ii) in the event that any Leasehold
Interests in and to dental and other equipment and furniture leased by Seller
are not assignable, such Leasehold Interest(s) shall not be assigned to
Purchaser; provided, further, that any leasehold expense incurred by Seller on
Leasehold Interests retained by Seller shall be considered a Center Expense (as
defined in that certain Service Agreement dated of even date herewith by
<PAGE> 2
and between Seller and Purchaser) for the purpose of determining the
Service Fee to be paid to Purchaser only to the extent that any
provisions in the operative lease documents or instruments, including
but not limited to lease expense and term, are reasonable and customary
and do not exceed the fair market rent for the leased dental and other
equipment (including any leased automobiles) or furniture. Any
Leasehold Interests to be retained by Seller or which are nonassignable
shall be identified by Seller at Closing (as hereinafter defined) to
Purchaser's satisfaction.
(b) All of Seller's licenses, permits, equipment, tools,
furniture, furnishings, fixtures, inventory, supplies, technology,
prepaid items, petty cash, accounts receivable, notes receivable,
files, records (other than patient records), patient lists, supplier
lists and all other personal property located at the Center or used in
connection with the business of the Center as a going concern and with
the operation of the Center located thereon, reasonably required to
operate a licensed and certified orthodontic practice in Florida,
including without limitation all of those items of personal property
set forth and described in Exhibit "B" attached hereto (such personal
property is hereinafter referred to as the "Personal Property") (the
Leasehold Interest and the Personal Property are sometimes hereinafter
collectively referred to as the "Assets").
1.02 TRANSFER. Seller shall execute and deliver such instruments of
conveyance, sale, assignment or transfer, and shall take or cause to be taken
such further action as the Purchaser or its counsel shall request at any time or
from time to time to vest, confirm or evidence in the Purchaser good and
marketable title to all of the Assets intended to be conveyed, sold,
transferred, assigned and delivered to the Purchaser hereby under this
Agreement, free and clear of all liens, claims and encumbrances, except the
Permitted Exceptions (as hereinafter defined).
1.03 CLOSING DATE. The sale, transfer and delivery of the Assets
pursuant to the terms of this Agreement and the delivery of the Purchase Price
(as hereinafter defined) shall take place as soon as all appropriate conditions
as set forth herein have been fulfilled, but in no event later than October 15,
1997, at the offices of Nelson Mullins Riley & Scarborough, L.L.P., First Union
Plaza, Suite 1400, 999 Peachtree Street, Atlanta, Georgia 30309, or at such
other place and date as Purchaser and Seller shall agree. The date on which the
last of all payments and deliveries occurs is the "Closing Date", and such
payments and deliveries constitute the "Closing." The parties hereto shall use
their reasonable best efforts to satisfy all appropriate conditions as soon as
possible.
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<PAGE> 3
SECTION 2. PURCHASE PRICE AND EXPENSES.
2.01 PURCHASE PRICE. Purchaser hereby agrees to pay to Seller for
the Assets of the Center at least one hundred percent (100%) of the Center's
1996 Adjusted Gross Revenues (as hereinafter defined), with the actual amount to
be determined upon completion of an initial public offering of Purchaser's
common stock (the "IPO") (as finally determined, the "Purchase Price"), which
final Purchase Price shall be the Seller's proportional interest in the sum of
the value of all of the orthodontic entities included in the IPO, which sum
shall constitute 62% of the total market capitalization of Purchaser without
giving effect to the IPO. The valuation for determining the final Purchase Price
of each orthodontic entity included in the IPO shall be based on the adjusted
gross revenues and operating results of each such orthodontic entity for the
trailing twelve-month period used in preparation of Purchaser's registration
statement on Form S-1 with respect to the IPO. The Purchase Price shall be paid
as follows:
(a) Up to a maximum of 20% of the Purchase Price shall be
paid in cash or immediately available funds at Closing; and
(b) The remainder of the Purchase Price to be paid to
Seller in stock of Purchaser to be valued at the time of the IPO, which
IPO shall occur simultaneously with the Closing.
As used herein, the term "1996 Adjusted Gross Revenue" shall be determined in
accordance with generally accepted accounting principles and shall mean all fees
and charges recorded or booked in fiscal year 1996 by or on behalf of the Seller
as a result of professional orthodontic services personally furnished to
patients by the Orthodontist(s) and those under the Orthodontist's supervision
and other fees or income generated in their capacity as professionals after any
adjustments for uncollectible accounts, professional courtesies and other
activities that do not generate a collectible fee.
2.02 COSTS AND EXPENSES. Each party to this Agreement shall pay its
fees, costs and expenses and those of its agents, accountants, lawyers and
investment advisors, whether or not the transactions contemplated hereby are
consummated in accordance with the terms of this Agreement.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller hereby represents, warrants and covenants to Purchaser as
follows, and acknowledges and confirms that Purchaser is relying upon such
representations, warranties and covenants in connection with the execution,
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<PAGE> 4
delivery and performance of this Agreement, notwithstanding any investigation
made by Purchaser or on its behalf:
3.01 ORGANIZATION OF SELLER. Seller is a ________________________
formed and in existence under the laws of the State of Florida and Seller has
the power and authority to own its property and to carry on its business as and
where such business is now conducted.
3.02 TITLE TO ASSETS. Seller has good and marketable title to the
Assets at the Center, and the right to sell, transfer, assign and deliver the
Assets at the Center to Purchaser, free and clear of all liens, encumbrances,
claims, security interests, pledges, agreements and rights of others, except for
the Permitted Exceptions (as hereinafter defined), and upon transfer of the
Assets at the Center to Purchaser, Purchaser will hold good and marketable title
to the Assets at the Center free and clear of all liens, claims, encumbrances,
and rights of third parties whatsoever, except for the Permitted Exceptions.
3.03 AUTHORIZATION AND BINDING EFFECT. This Agreement and each of
the agreements and instruments contemplated hereby has been duly and validly
authorized, executed and delivered by the Seller and constitutes the legal,
valid and binding obligations of the Seller, enforceable in accordance with its
terms. All corporate actions and proceedings required for the execution and
delivery of this Agreement, and for the consummation of the transactions
contemplated hereby, have been duly taken.
3.04 NO CONFLICTS. The execution, delivery and performance by the
Seller of this Agreement or any agreements required hereby to be executed by
Seller, will not (i) constitute a violation of, conflict with or constitute a
default under any term or provision of the Seller's formation documents, (ii) to
the best of Seller's knowledge, constitute a violation of any statute,
ordinance, judgment, order, decree, regulation or rule of any court,
governmental authority or arbitrator or any license, permit or franchise
applicable or relating to the Center or (iii) result in the creation of any lien
upon the Center pursuant to the provisions of any of the foregoing.
3.05 CONDITION OF ASSETS. Upon Closing, the Assets at the Center,
including the Personal Property, will be in good condition comparable to the
condition existing on the date of this Agreement, ordinary wear and tear
excepted. Seller shall not remove any Personal Property from the Center prior to
the Closing, except for the purpose of repair or replacement or in the ordinary
course of business, and any such Personal Property or its replacement, as the
case may be, shall be included in this transaction. Seller shall keep all
insurance policies or renewals thereof affecting or covering the Center in full
force and effect up to and
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<PAGE> 5
including the date of Closing unless the reason for such policies ceases or such
policies are replaced in the ordinary course of business.
3.06 TAXES. Except as set forth on Exhibit "C", Seller has timely
filed or caused to be timely filed all federal income tax returns and all other
federal, state, county, local or city tax returns which are required to be
filed, and has paid or caused to be paid all taxes shown on said returns or on
any tax assessment received by them (including, without limitation, real and
personal property taxes) to the extent that such taxes have become due. No
events have occurred which could impose on Purchaser any transferee liability
for any taxes, penalties, or interest due or to become due from Seller.
3.07 CLAIMS AND LEGAL ACTIONS. Except as set forth on Exhibit "C",
there is no claim, legal action, counterclaim, suit, arbitration, governmental
investigation or other legal, administrative or tax proceeding, nor any order,
decree or judgment, in progress, pending, or threatened against or relating to
Seller, the Center, or the business or operations of the Seller, nor does Seller
know or have reason to be aware of any basis for the same.
3.08 MAINTENANCE OF BUSINESS OPERATIONS AND EMPLOYEES. Seller shall
use its best efforts to preserve and maintain the Center's business operations
intact, and use its best efforts to keep available to Purchaser the services of
the Center's employees, to preserve and maintain the Personal Property and to
preserve to the extent possible the goodwill of the Center's business. Prior to
the Closing Date, Seller shall not (i) except in the usual and ordinary course
of business of Seller consistent with past practice, incur any indebtedness or
other liabilities, guarantee any indebtedness or sell any assets of the Center,
or (ii) increase the compensation payable to any employee, stockholder, member
or doctor other than normal merit and cost of living increases granted in the
ordinary course of business, (iii) enter into any employment agreements or adopt
any employee benefit plan or increase the benefits or obligations of Seller or
the Center under any employee benefit plan, (iv) permit any of the Assets to be
subjected to any new mortgage, pledge, security interest, lien, claim,
encumbrance, or restriction of any kind, or (v) discharge or satisfy any claims,
liabilities or obligations of the Center other than in the usual course of
business.
3.09 CONSENTS. Except as set forth on Exhibit "C", there are no
persons whose consent is necessary for Seller to consummate the transactions
contemplated by this Agreement. Each party hereto agrees to cooperate with each
other party to obtain the consents, approvals and authorizations of third
parties and governmental authorities that any such party reasonably determines
to be necessary to consummate the transactions contemplated by this Agreement.
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<PAGE> 6
3.10 NO MANAGEMENT CONTRACT OR LEASE. Except for any lease
agreement(s) between Seller and Seller's landlord(s), which lease agreement(s)
shall be assigned by Seller to Purchaser at Closing to the extent assignable and
copies of which lease agreement(s) have been provided to Purchaser by Seller,
there will be no management contracts or leases for the Center at the time of
Closing.
3.11 ACCURACY OF INFORMATION. No representations, warranties or
covenants by Seller, nor any statement, list or certificate furnished or to be
furnished to Purchaser pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of fact or
omits or will omit to state a fact necessary to make the statements contained
therein not misleading in light of the circumstances under which they were made.
3.12 NOTICE AS TO CHANGES. Seller will promptly advise Purchaser in
writing of the occurrence of any events of which Seller becomes aware after the
date of this Agreement and prior to Closing relating to any of the matters which
are the subject of the covenants, representations and warranties contained
herein.
3.13 BULK SALES. Seller shall comply with any and all applicable
bulk sales laws.
3.14 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The warranties,
representations and covenants of the Seller contained in this Agreement shall be
true and correct as of the Closing Date with the same force and effect as if
given and made on and as of the date and time of Closing, and such
representations, warranties and covenants shall survive the Closing and the
consummation of the transactions contemplated by this Agreement for the period
of three (3) years.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
Purchaser hereby represents, warrants and covenants to Seller as
follows, and acknowledges and confirms that Seller is relying upon such
representations, warranties and covenants in connection with the execution,
delivery and performance of this Agreement, notwithstanding any investigation
made by Seller or on its behalf:
4.01 ORGANIZATION OF PURCHASER. Purchaser is a corporation
organized and in existence under the laws of the State of Delaware and has all
requisite corporate power and authority to enter into this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby.
4.02 AUTHORIZATIONS AND BINDING EFFECT. This Agreement has been
duly and validly authorized, executed and delivered by Purchaser and constitutes
the legal,
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<PAGE> 7
valid and binding obligation of Purchaser, enforceable in accordance with its
terms. All other corporate proceedings required by the Articles of Incorporation
or the Bylaws of Purchaser or otherwise for the execution and delivery of this
Agreement, and for the consummation of the transactions contemplated hereby,
have been duly taken.
4.03 NO VIOLATION. The execution, delivery and performance by the
Purchaser of this Agreement or any agreements required hereby to be executed by
Purchaser, will not (i) constitute a violation of, conflict with or constitute a
default under any term or provision of the Purchaser's Articles of Incorporation
or bylaws, each as amended, (ii) to the best of Purchaser's knowledge,
constitute a violation of any statute, ordinance, judgment, order, decree,
regulation or rule of any court, governmental authority or arbitrator or any
license, permit or franchise applicable or relating to the Center or (iii)
result in the creation of any lien upon the Purchaser's assets pursuant to the
provisions of any of the foregoing.
4.04 ACCURACY OF INFORMATION. No representations, warranties or
covenants by Purchaser or the members, officers or directors of the Purchaser,
nor any statement, list or certificate furnished or to be furnished to the
Seller pursuant hereto, or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of fact or omits or will
omit to state a fact necessary to make the statements contained therein not
misleading in light of the circumstances under which they were made.
4.05 CLAIMS AND LEGAL ACTIONS. There is no claim, legal action,
counterclaim, suit, arbitration, governmental investigation or other legal,
administrative or tax proceeding, nor any order, decree or judgment, in
progress, pending, or threatened against or relating to Purchaser or the
business or operations of the Purchaser, nor does Purchaser know or have reason
to be aware of any basis for the same.
4.06 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
warranties and representations of the Purchaser contained in this Agreement
shall be true and correct as of the Closing with the same force and effect as if
given and made on and as of the date and time of Closing, and such
representations and warranties shall survive the Closing and the consummation of
the transactions contemplated by this Agreement for the period of three (3)
years.
4.07 NOTICE AS TO CHANGES. Purchaser shall promptly advise Seller
in writing of the occurrence of any events of which Purchaser becomes aware
after the date of this Agreement and prior to Closing relating to any of the
matters which are the subject of the covenants, representations and warranties
contained herein. In the event Purchaser withdraws or abandons the registration
statement for the
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<PAGE> 8
IPO prior to October 15, 1997, then Purchaser shall immediately notify Seller in
writing within five (5) business days of such abandonment or withdrawal.
SECTION 5. CONVEYANCES.
At Closing, the Personal Property shall be conveyed by general
assignment and bill of sale. The Leasehold Interest shall be assigned to
Purchaser pursuant to assignment agreements. In advance of the Closing Date,
appropriate forms of such bill of sale and assignment agreements shall be
prepared by Purchaser's counsel in conformity with this Agreement and shall be
submitted to Seller for its approval, which shall not be unreasonably withheld.
Good and marketable title to the Assets at the Center including the Personal
Property shall be conveyed from Seller to Purchaser free and clear of all liens,
claims, charges, encumbrances, restrictions, assessments (including, without
limitation, any assessments payable in installments, all of which installments
have not been paid), encroachments, leases and easements, of any kind, subject
only to taxes for the current year, and those other liens, claims, charges,
encumbrances or objections, if any, set forth in Exhibit "D" attached hereto and
by reference made a part hereof (such other liens, claims, charges, encumbrances
or objections are hereinafter referred to as "Permitted Exceptions"). Subject to
the Permitted Exceptions, Seller shall have satisfied or canceled of record all
debt or security instruments which create a lien on the Personal Property,
including, without limitation, any mortgage, indenture, security agreement, or
deed to secure debt outstanding on any portion of such Personal Property.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to perform this Agreement are subject to
the satisfaction of the following conditions, each of which may be waived by
Purchaser:
6.01 ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS. At Closing, Seller shall certify to Purchaser that (i) the
representations and warranties of Seller herein contained are true and correct
as of the Closing Date with the same effect as though made on the Closing Date
(except for changes permitted or contemplated by the terms of this Agreement or
except to the extent that such changes expressly relate to an earlier date); and
(ii) Seller has performed all obligations and complied with all covenants
required by this Agreement to be performed or complied with by Seller prior to
the Closing Date.
6.02 DELIVERIES. Seller hereby agrees to, and shall, deliver or
cause to be delivered to the Purchaser at the Closing the following, each of
which shall be in form and substance satisfactory to the Purchaser:
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<PAGE> 9
(a) BILL OF SALE. A General Assignment and Bill of Sale
for all of Seller's right, title and interest in and to the Personal
Property and fixtures located in the Center, including those items
described in Exhibit "B" attached hereto and by this reference made a
part hereof;
(b) OTHER INSTRUMENTS. Such other endorsements,
assignments and instruments of transfer and conveyance as may be
necessary to vest in the Purchaser good and marketable title to the
assets and business to be sold hereunder and as shall be reasonably
requested by Purchaser; and
(c) CERTIFICATES REGARDING AUTHORITY AND OTHER MATTERS.
Certificates or affidavits of Seller in form and substance satisfactory
to Purchaser regarding the authority and power of the Seller to
complete the transactions provided for herein, and the accuracy of
Seller's representations, and warranties and covenants contained
herein.
6.03 AUTHORIZATION OF AGREEMENT BY SELLER. All actions necessary to
authorize the execution, delivery and performance of this Agreement and all
documents contemplated herein and therein shall have been duly and validly taken
by the officers of the Seller, and Seller shall have full power and right to
consummate the transactions contemplated hereby or thereby on the terms provided
herein or therein. Seller shall provide Purchaser at Closing with a certified
resolution approving the execution of this Agreement and the transactions
contemplated hereby.
6.04 NO INJUNCTION OR RESTRAINING ORDER. No injunction, restraining
order or other order of any federal or state court in the United States that
prevents the consummation of the transactions contemplated hereby shall be
pending or shall have been issued and remain in effect.
6.05 GOVERNMENTAL CONSENTS, APPROVALS AND AUTHORIZATIONS. All
consents, authorizations, orders or approvals of, and filings or registrations
with, any governmental commission, board or other regulatory body that are
required for or in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby shall have been
obtained or made.
6.06 INSPECTION AND SURVEY. Purchaser and/or its agents (including
accountants, lawyers and investment bankers) shall have conducted, completed and
be satisfied with (i) a physical plant inspection of the Center and an
inspection of the Personal Property, and (ii) an inspection of the Center's
business and legal and financial books and records, including any leases for
office space, furniture or equipment. Seller shall make such items available to
Purchaser and/or its agents at
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<PAGE> 10
reasonable times and in such a manner so as not to unreasonably disrupt the
Center's normal business.
6.07 MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change after the date of the most recent financials in the results of
operations, business, assets, properties, liabilities, financial position or
affairs of the Center or the Seller, which in the good faith judgment of the
Purchaser has had, or will have a materially adverse effect on the Center or the
Center's business.
6.08 PUBLIC OFFERING OR FIRM UNDERWRITING. Purchaser shall have
completed a public offering for the sale of at least $10,000,000 of the stock of
Purchaser.
6.09 CASUALTY LOSSES. On or prior to the time of Closing, the
Center shall not have sustained any loss, whether or not insured, by reason of
physical damage to the Center caused by fire, flood, accident, explosions or
other calamity which would adversely affect the carrying on of its business in
the normal and regular course.
6.10 ACCOUNTING TREATMENT. Purchaser shall have received approval
from its auditors and an indication of no objection from the Securities and
Exchange Commission ("SEC") as to Purchaser's and the Center's, along with other
orthodontic practices, "roll-up" accounting treatment, on terms acceptable to
Purchaser.
6.11 EMPLOYMENT AGREEMENT. Seller shall enter into a five (5) year
employment agreement with any Orthodontist(s) who have an equity interest in
Seller or deliver patient care at the Center(s) on average more than ten (10)
days per month the Center(s), as employee(s) to the Center(s) after the
consummation of the transactions contemplated hereby, which employment
agreements shall contain a non-competition agreement with respect to Purchaser.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
The obligations of Seller to perform this Agreement are subject to the
satisfaction of the following conditions, each of which may be waived by Seller:
7.01 ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS. At Closing, Purchaser shall certify to Seller that (i) the
representations and warranties of the Purchaser herein contained are true and
correct as of the Closing Date with the same effect as though made on the
Closing Date (except for changes permitted or contemplated by the terms of this
Agreement or except to the extent that they expressly relate to an earlier
date); and (ii) Purchaser has performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by it
prior to the Closing Date.
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7.02 DELIVERY OF THE PURCHASE PRICE. Purchaser shall have delivered
to Seller the Purchase Price, as described in Section 2.01.
7.03 GOVERNMENTAL CONSENTS, APPROVALS AND AUTHORIZATIONS. All
consents, authorizations, orders or approvals of, and filings or registrations
with, any governmental commission, board or other regulatory body that are
required for or in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby shall have been
obtained or made.
7.04 NO INJUNCTION OR RESTRAINING ORDER. No injunction, restraining
order or other order of any federal or state court in the United States that
prevents the consummation of the transactions contemplated hereby shall be
pending or shall have been issued and remain in effect.
7.05 INITIAL PUBLIC OFFERING. Purchaser shall have completed the
IPO on or before October 15, 1997.
SECTION 8. PRORATIONS AND ADJUSTMENTS.
The following items shall be adjusted based on the Closing Date on a
pro rata basis between Seller and Purchaser at the time of the Closing or after
the Closing as agreed upon by Purchaser and Seller:
(a) Personal property ad valorem taxes for the 12 month period
succeeding the applicable tax bill due date;
(b) Charges for electricity, gas, water and sewer and other
utilities to be based on projections from most recent invoices
or on recent meter readings; and
(c) Such other items as may be agreed upon by Seller and
Purchaser.
SECTION 9. FEDERAL SECURITIES LAWS.
9.01 INVESTMENT REPRESENTATION. Seller acknowledges that the shares
of stock of Purchaser to be delivered to the Seller at the Closing pursuant to
this Agreement have not been and will not be registered under the Securities Act
of 1933 ("1933 Act") and may not be sold, transferred, pledged or otherwise
disposed of in the absence of an effective registration statement covering the
shares under the 1933 Act and applicable state securities laws, or unless an
exemption from such registration is available and a legal opinion to that effect
is delivered to and accepted by the Purchaser. The stock to be acquired by the
Seller pursuant to this Agreement is being acquired solely for Seller's own
account, for
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investment purposes only and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
9.02 COMPLIANCE WITH LAW. Seller represents and warrants that none
of the shares of Purchaser stock issued to Seller will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of, except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Purchaser stock issued
hereunder shall bear the following restrictive legend, as well as any legend
required by the securities or blue sky laws of the state where Purchaser
resides:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY JURISDICTION AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AFTER RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT AN EXEMPTION
FROM REGISTRATION IS AVAILABLE UNDER APPLICABLE SECURITIES LAWS.
9.03 INVESTMENT RISK. Seller is able to bear the economic risk of
an investment in Purchaser stock acquired pursuant to this Agreement and can
afford to sustain a total loss of such investment and has such knowledge and
experience in financial and business matters that Seller represents and warrants
that it is capable of evaluating the merits and risks of the proposed investment
and therefore has the capacity to protect Seller's interests in connection with
the acquisition of Purchaser stock. Seller or their representatives have had an
adequate opportunity to ask questions and receive answers from Purchaser
concerning any and all matters relating to Purchaser and the transaction
described herein.
9.04 ACCREDITED INVESTOR STATUS. Seller represents and warrants
that he is an "accredited investor" as defined in Rule 501(a) under the 1933
Act.
9.05 PIGGYBACK REGISTRATION RIGHTS. Purchaser has no obligation to
register the shares of Purchaser stock that Seller will receive under this
Agreement. Provided, however, in the event Purchaser, at any time within 24
months after the Closing, contemplates and undertakes a public offering of its
shares of Common Stock and the filing of a registration statement with the SEC
in connection therewith, Purchaser shall notify the Seller in writing of the
proposed offering and of any material terms and conditions of the offering known
to Purchaser. Purchaser shall use all reasonable efforts to have included in
such registration statement all or
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any portion of the shares distributed to Seller hereunder, subject, however, to
such terms, conditions and limitations (including but not limited to the number
of shares that Seller may offer to sell in such registration statement) as any
underwriter retained by Purchaser in connection with such offering may require,
and provided that the public offering and sale of such shares is not restricted
by any legend or other condition imposed by any state securities commissioner.
Seller shall take all such action and execute all such documents including, but
not limited to, the execution and delivery of an underwriting agreement in form
and substance in all material respects the same as the underwriting agreement to
be signed by Purchaser, as may be requested by Purchaser. The cost of such
public offering shall be borne by Purchaser, except that Seller shall pay its
proportionate share of underwriters' commissions and discounts and the costs and
fees of any attorneys, accountants and other persons retained by Seller in
connection with the offering. The provisions of this Section 9.05 shall not
apply to registration statements filed in connection with employee stock
purchase and option programs by Purchaser or in connection with actual or
proposed acquisitions by Purchaser. Seller shall notify Purchaser of its
election to exercise its rights herein specified in writing within thirty (30)
days after the aforesaid written notice to the Seller by Purchaser."
SECTION 10. BROKERS.
Seller shall pay any real estate broker(s) or finder(s) employed by
Seller. Seller shall indemnify and hold harmless Purchaser for any and all
claims and expenses arising from Seller's employment of a broker or finder.
Purchaser shall pay any real estate broker(s) or finder(s) employed by
Purchaser. Purchaser shall indemnify and hold harmless Seller for any and all
claims and expenses arising from Purchaser's employment of a broker or finder.
SECTION 11. ASSUMED LIABILITIES.
Except as specifically provided in this Agreement, Purchaser shall
assume no liabilities, obligations or indebtedness of Seller or the Center
whether express or implied, contingent or absolute, disputed or final, nor shall
anything herein be construed to the contrary.
SECTION 12. TERMINATION.
12.01 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated by this Agreement may be terminated at any time prior to the
Closing Date:
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(a) By the mutual consent of the Purchaser and the
Seller.
(b) By the Purchaser in the event that the conditions set
forth in Sections 3 and 6 of this Agreement shall not have been
satisfied or waived by the Closing.
(c) By the Seller in the event that the conditions set
forth in Sections 4 and 7 of this Agreement shall not have been
satisfied or waived by the Closing.
(d) By either party upon written notice after October 15,
1997.
(e) By the Seller upon receipt of the Purchaser's notice
of withdrawal or abandonment of the registration statement for the IPO
by October 15, 1997 referred to in Section 4.07 hereof.
12.02 NOTICE OF TERMINATION. Notice of termination of this Agreement
shall be given by the party so terminating to the other parties hereto, in
accordance with the provisions of Section 14 of this Agreement.
12.03 EFFECT OF TERMINATION. In the event that this Agreement is
terminated pursuant to this Section 12, this Agreement shall be void and have no
further force and effect, without any liability on the part of any of the
parties hereto (or their respective members, stockholders, directors or
officers, if any).
SECTION 13. DESCRIPTIVE HEADINGS.
The descriptive headings of this Agreement are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
SECTION 14. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given if (a) delivered by hand, (b) mailed by registered or
certified mail (return receipt requested), (c) telecopied and immediately
confirmed, or (d) sent by overnight delivery, to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which so hand-delivered or so
telecopied, on the third business day following the date on which so mailed, if
deposited in a regularly-maintained receptacle for United States mail, or on the
first business day following the date on which sent by overnight delivery:
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If to Purchaser:
Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard, Suite 200
Torrance, California 90505
Attn: Mr. Sam Westover, Chief Executive Officer
Telecopier: (310) 791-5660
Telephone: (310) 791-5657
With a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street
Atlanta, Georgia 30309
Attn: Paul A. Quiros, Esq.
Telecopier: (404) 817-6050
Telephone: (404) 817-6103
If to Seller:
-------------------------------
Attention:
---------------------
-------------------------------
-------------------------------
Telephone:
---------------------
Telecopier:
---------------------
SECTION 15. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
SECTION 16. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without regard for its
principles of conflicts of laws.
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SECTION 17. ASSIGNABILITY.
This Agreement shall not be assignable by the Seller without the prior
written consent of the Purchaser. This Agreement shall be assignable by
Purchaser to (i) any person, firm or corporation that controls or is under
common control with Purchaser, (ii) US Orthodontic Care, Inc. ("USOC") or any
person, firm or corporation that controls or is under common control with USOC,
or (iii) any entity that results from a merger or other combination between
Purchaser and USOC ("Newco") and any person, firm or corporation that controls
or is under common control with Newco.
SECTION 18. WAIVERS AND AMENDMENTS.
Any term or provision of this Agreement may be waived at any time by
the party that is entitled to the benefits thereof, and any term or provision of
this Agreement may be amended or supplemented at any time by the mutual consent
of Purchaser and Seller, except that any waiver of any term or condition, or any
amendment or supplementation, of this Agreement must be in writing. A waiver of
any breach or failure to enforce any of the terms or conditions of this
Agreement shall not in any way affect, limit or waive a party's rights hereunder
at any time to enforce strict compliance thereafter with every term or condition
of this Agreement.
SECTION 19. THIRD PARTY RIGHTS.
Notwithstanding any other provision of this Agreement, this Agreement
shall not create any rights or benefits on behalf of any employee of Seller,
third party or other person, and this Agreement shall be effective only as
between the parties hereto, their successors and permitted assigns.
SECTION 20. ENTIRE AGREEMENT.
This Agreement (including the Exhibits, agreements, documents and
instruments referred to herein) constitutes the entire agreement, and supersedes
all other prior agreements and understandings, both written and oral, among the
parties, or any of them with respect to the subject matter hereof.
SECTION 21. SEVERABILITY.
In the event that any one or more of the provisions contained in this
Agreement shall be declared invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall remain in full force and effect.
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SECTION 22. EXHIBITS.
The parties shall have until Closing to agree upon all information to
be filed as a part of the Exhibits to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first set forth above.
SELLER:
----------------------------------
By:
------------------------------
Name:
--------------------------
Title:
------------------------
PURCHASER:
PREMIER ORTHODONTIC GROUP, INC.
By:
------------------------------
Name:
--------------------------
Title:
------------------------
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EXHIBIT 2.3
AMENDED AND RESTATED FORM
OF
AGREEMENT AND PLAN OF REORGANIZATION
by and among
PREMIER ORTHODONTIC GROUP, INC.
--------------------, D.M.D.
--------------------, D.M.D.
and
---------------------------, INC.
DATED ------------------, 1997
THIS AGREEMENT IS SUBJECT TO ARBITRATION.
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
executed as of the _____ day of ____________, 1997, is by and among PREMIER
ORTHODONTIC GROUP, INC., a Delaware corporation ("Premier");
____________________________________, a ______________________ (the "Company"),
and _____________________ D.M.D. and _____________________ D.M.D., residents of
the State of ______________________ (individually "Shareholder" and collectively
"Shareholders").
WITNESSETH:
WHEREAS, the Company owns certain assets used to operate an orthodontic
practice in ______________________________;
WHEREAS, Shareholders are the only shareholders of the Company;
WHEREAS, Premier is engaged in the business of acquiring the assets of
and managing [providing consulting services with respect to] orthodontic
practices to the extent permitted by applicable law; and
WHEREAS, the Boards of Directors of each of the Company and Premier
have determined that a business combination between the parties is in the best
interests of their respective companies and stockholders and accordingly have
agreed to effect the Merger (as hereinafter defined) upon the terms and
conditions set forth herein;
WHEREAS, it is intended that for federal income tax purposes the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. THE MERGER
The closing of the transactions contemplated hereby (the "Closing")
will take place as soon as practicable following the satisfaction or waiver of
the conditions to the obligations of the parties to effect the Merger, but in no
event shall the Closing be held later than October 15, 1997 (such date of
Closing being referred to herein as the "Closing Date"). The place of Closing
shall be at such place as the parties may mutually agree.
1.1 MERGER OF THE COMPANY INTO PREMIER. On the Closing Date, the
Company shall be merged with and into Premier in accordance with this Agreement
and the separate corporate existence of the Company shall thereupon cease (the
"Merger"). The Merger shall be based on the respective representations,
warranties and agreements of the parties hereto, and shall be subject to the
terms and conditions herein stated. The Merger is intended to be a "tax-free
reorganization" pursuant to Section 368(a)(1)(A) of the Code and the parties
hereto shall not report the transaction in a manner inconsistent therewith or
otherwise take any action that would prevent the Merger from qualifying as such;
provided, however, that the actual tax effect of the transactions contemplated
by this Agreement is not a condition precedent to the closing of the
transactions contemplated hereby and no party hereto makes or has made any
representation, warranty or covenant to any other party hereto as to such
qualification. Premier shall be the surviving corporation in the Merger (in such
capacity, hereinafter referred to as the "Surviving Corporation") and shall be
governed by the laws of the State of Delaware, and the separate corporate
existence of Surviving Corporation with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the Merger,
except as set forth herein. The Merger shall have the effects specified pursuant
to the laws of the State of Delaware.
1.2 MERGER CERTIFICATES. If all conditions to the Merger set forth
herein have been fulfilled or waived in accordance herewith and this Agreement
shall not have been terminated pursuant to the terms hereof, the parties hereto
shall cause to be properly executed and filed on the Closing Date Articles of
Merger meeting the requirements of the laws of the State of
________________________. The Merger shall become effective on the Closing Date
(such effective date being referred to herein as the "Effective Date").
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1.3 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. At the
Effective Date, the Articles of Incorporation of Premier shall be the Articles
of Incorporation of the Surviving Corporation.
1.4 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Premier on
the Closing Date shall be the Bylaws of the Surviving Corporation, unless and
until duly amended in accordance with their terms.
1.5 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are
irectors of Premier immediately prior to the Effective Date shall, from and
after the Closing Date, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws.
1.6 OFFICERS OF THE SURVIVING CORPORATION. The persons who are
officers of Premier immediately prior to the Effective Date shall, from and
after the Effective Date, be the officers of the Surviving Corporation and shall
hold their same respective office(s) until their earlier death, resignation or
removal.
1.7 CONVERSION OF COMPANY COMMON STOCK. The manner of converting
shares of the Company in the Merger shall be as follows:
(a) As a result of the Merger and without any
action on the part of the holder thereof, all shares of Company common stock
issued and outstanding on the Effective Date shall cease to be outstanding and
shall be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company common stock shall
thereafter cease to have any rights with respect to such shares of Company
common stock, except the right, subject to Section 1.8(c), to receive, without
interest, the consideration specified in Annex I attached hereto (in the
aggregate, the "Merger Consideration").
(b) Each share of Company common stock held in
the Company's treasury, if any, on the Closing Date, by virtue of the Merger,
shall cease to be outstanding and shall be canceled and retired without payment
of any consideration therefor and shall cease to exist.
1.8 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON
STOCK.
(a) On the Closing Date, (i) the Shareholders,
as the holders of all outstanding certificates representing shares of Company
common stock, shall, upon surrender of such certificates, be entitled to receive
the Merger Consideration and (ii) until the certificates representing Company
common stock have been surrendered by Shareholders and replaced by certificates
representing Premier common stock, the certificates for Company common stock
shall, for all purposes, be deemed to evidence ownership of Premier common stock
in such share amounts as will be issued pursuant to Annex I.
(b) The Shareholders shall deliver to Premier on
the Closing Date the certificates representing Company common stock owned by
them, duly endorsed in blank by the Shareholders, or accompanied by blank stock
powers, and with all necessary transfer tax and other revenue stamps (if any),
acquired at the Shareholders' expense. The Shareholders agree to cure any
deficiencies with respect to the endorsement of the certificates or other
documents of conveyance with respect to such Company common stock or with
respect to the stock powers accompanying any Company Common Stock. Simultaneous
with such delivery on the Closing Date, the Shareholders shall receive in
exchange therefor a certificate representing that number of shares of Premier
common stock and the amount of any cash such Shareholder is entitled to receive
pursuant to Sections 1.7 and 1.8(c) hereof.
(c) Notwithstanding Section 1.7 or any other
provision of this Section 1.8, no fractional shares of Premier common stock will
be issued.
1.9 SUBSEQUENT ACTIONS. If, at any time after the Effective Date,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, and to effect the cancellation of all outstanding
shares of Company common
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stock in return for the consideration set forth in this Agreement, the officers
and directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of the Company, and each Shareholder or
otherwise, to carry out all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of the Company or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS.
The Company and the Shareholders, jointly and severally, hereby
represent and warrant to Premier that the following statements are current and
complete as of the date of this Agreement and will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement, except as set forth in the
disclosure Exhibits accompanying this Section 2) and the Effective Date. The
disclosure Exhibits will be arranged in paragraphs corresponding to the
paragraphs contained in this Section.
2.1 CORPORATE EXISTENCE; GOOD STANDING. The Company is a
[professional association] duly organized, validly existing and in good standing
under the laws of the State of ________________. The Company has all necessary
corporate powers to own all of its assets and to carry on its business as such
business is now being conducted. The Company does not own stock directly or
indirectly, in any other corporation, association or business organization, nor
is the Company a party to any joint venture or partnership, other than as set
forth on Exhibit 2.1. The Shareholders are the sole shareholders of the Company
and own all outstanding shares of capital stock free of all security interests,
claims, encumbrances and liens in the amounts set forth on Exhibit 2.1. Each
share of Company common stock has been legally and validly issued and fully paid
and nonassessable. No shares of capital stock of the Company are owned by the
Company in treasury. There are no outstanding (a) bonds, debentures, notes or
other obligations the holders of which have the right to vote with the
stockholders of the Company on any matter (except as set forth in Exhibit 2.1),
(b) securities of the Company convertible into equity interests in the Company,
or (c) commitments, options, rights or warrants to issue any such equity
interests in the Company, to issue securities of the Company convertible into
such equity interests, or to redeem any securities of the Company. No shares of
capital stock of the Company have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Company's shareholders. The Company is not required to qualify to do business as
a foreign corporation in any other state or jurisdiction by reason of its
business, properties or activities in or relating to such other state or
jurisdiction. The Company does not have any assets, employees or offices in any
state other than_______________________.
2.2 POWER AND AUTHORITY FOR TRANSACTIONS. The Company has the
corporate power to execute, deliver and perform this Agreement and all
agreements and other documents executed and delivered by it pursuant to this
Agreement or to be executed and delivered on the Closing Date, and has taken all
action required by law, its Articles of Incorporation, its Bylaws or otherwise,
to authorize the execution, delivery and performance of this Agreement and such
related documents. Each Shareholder has the legal capacity to enter into and
perform this Agreement and the other agreements to be executed and delivered in
connection herewith. The Company has obtained (or will obtain as of the Closing
Date) the approval of its shareholders necessary to the consummation of the
transactions contemplated herein. This Agreement and all agreements and
documents executed and delivered in connection herewith have been, or will be as
of the Closing Date, duly executed and delivered by the Company and the
Shareholders, as appropriate, and constitute or will constitute the legal, valid
and binding obligations of the Company and the Shareholders, enforceable against
the Company and the Shareholders in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
The execution and delivery of this Agreement, and the agreements executed and
delivered pursuant to this Agreement or to be executed and delivered on the
Closing Date, do not, and, subject to the receipt of consents described on
Exhibit 2.5, the consummation of the actions contemplated hereby will not,
violate any provision of the Articles of Incorporation or Bylaws of the Company
or any provisions of, or result in the acceleration of, any obligation under any
mortgage, lien, lease, agreement, rent, instrument, order, arbitration award,
judgment or decree to which the Company or any Shareholder is a party or by
which the Company or any Shareholder is bound, or violate any material
restrictions of any kind to which the Company is subject, or result in any lien
or encumbrance on any of the Company's assets.
2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All
building or other permits, certificates of occupancy, concessions, grants,
franchises, licenses, certificates of need and other governmental authorizations
and approvals required to
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be maintained by the Company, the Shareholders and each licensed employee of the
Company have been duly obtained and are in full force and effect unless such
failure to obtain would not have a material adverse effect on the Company. There
are no proceedings pending or, to the knowledge of the Company and the
Shareholders, threatened, which may result in the revocation, cancellation or
suspension, or any adverse modification, of any thereof.
2.4 CORPORATE RECORDS. True and correct copies of the Articles of
Incorporation, Bylaws and all amendments thereto of the Company have been
delivered to Premier, and the books of account of the Company have been kept
accurately in the ordinary course of business and the revenues, expenses, assets
and liabilities of the Company have been properly recorded in such books.
2.5 CONSENTS. Except as set forth on Exhibit 2.5, no consent,
authorization, permit, license or filing with any governmental authority, any
lender, lessor, any manufacturer or supplier or any other person or entity is
required to authorize, or is required in connection with, the execution,
delivery and performance of this Agreement and the agreements and documents
contemplated hereby on the part of the Company or the Shareholders.
2.6 THE COMPANY'S FINANCIAL INFORMATION. The Company has
heretofore furnished Premier with copies of financial information ("Financial
Statements") about the Company as set forth on Exhibit 2.6 attached hereto,
including the unaudited Balance Sheet ("Balance Sheet") as of December 31, 1996
("Balance Sheet Date"). Such financial statements have been prepared consistent
with past practices, reflect all liabilities of the Company, including all
contingent liabilities of the Company, as of their respective dates, and present
fairly the financial position of the Company as of such dates and the results of
operations and cash flows for the period or periods reflected therein; provided,
however, that such Financial Statements are subject to post year end adjustments
(which will not be material individually or in the aggregate).
2.7 LEASES. Exhibit 2.7 attached hereto sets forth a list of all
leases pursuant to which the Company leases, as lessor or lessee, real or
personal property used in operating the business of the Company or otherwise.
Such leases listed on Exhibit 2.7 are valid and enforceable in accordance with
their respective terms unless such validity or unenforceability will have no
material negative impact on the Company. There is not under any such lease any
existing default by the Company, as lessor or lessee, or any condition or event
of which the Company or any Shareholder has knowledge which with notice or lapse
of time, or both, would constitute a default.
2.8 CONDITION OF ASSETS. All of the plants, structures and
equipment used by the Company in its business are in good condition and repair
subject to normal wear and tear and conform with all applicable ordinances,
regulations and other laws, and the Company and the Shareholders have no
knowledge of any latent defects therein.
2.9 TITLE TO AND ENCUMBRANCES ON PROPERTY. An inventory list of
all interests in personal property and real estate leasehold interests owned by
the Company is set forth on Exhibit 2.9 (the "Property"). The Company has good,
valid and marketable title to the Property free and clear of any liens, claims,
charges, exceptions or encumbrances, except for those, if any, which are set
forth in Exhibit 2.9 attached hereto or those which were disposed of in the
ordinary course of business prior to the Closing Date. The real estate leasehold
interest and personal property described on Exhibit 2.7 and Exhibit 2.9
constitute the only real and personal property used in the conduct of the
Company's business, except as otherwise disclosed in Exhibit 2.9. Upon
consummation of the transactions contemplated hereby, such interest in the
Property shall be free and clear of all liens, security interests, claims and
encumbrances and evidence of such releases of liens and claims shall be provided
to Premier on the Closing Date.
2.10 INVENTORIES. All inventories of the Company used in the
conduct of its business are reflected on the Balance Sheet in accordance with
generally accepted accounting principles consistently applied. The items of the
Company's inventory have been acquired in the ordinary course of its business,
are adequate for the reasonable requirements of its business, and may be used
for their intended purposes. Except as otherwise noted in the Balance Sheet,
substantially all of the inventory owned or used by the Company is in good,
current, standard and merchantable condition and is not obsolete or defective.
2.11 INTELLECTUAL PROPERTY RIGHTS; NAMES. Except as set forth on
Exhibit 2.11, the Company has no right, title or interest in or to patents,
patent rights, corporate names, assumed names, manufacturing processes, trade
names, trademarks, service marks, inventions, specialized treatment protocols,
copyrights, formulas and trade secrets or similar items and such items are the
only such items necessary for the conduct of its business. Set forth in Exhibit
2.11 is a listing of all names of all
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predecessor companies of the Company, including the names of any entities from
whom the Company previously acquired significant assets. Except for
off-the-shelf software licenses and except as set forth on Exhibit 2.11, the
Company is not a licensee in respect of any patents, trademarks, service marks,
trade names, copyrights or applications therefor, or manufacturing processes,
formulas or trade secrets or similar items and no such licenses are necessary
for the conduct of its business. No claim is or, to the best of Company's or
Shareholders' knowledge, is pending to the effect that the present or past
operations of the Company infringe upon or conflict with the asserted rights of
others to any patents, patent rights, manufacturing processes, trade names,
trademarks, service marks, inventions, licenses, specialized treatment
protocols, copyrights, formulas, know-how and trade secrets. To the best of
Company's and Shareholders' knowledge, the Company has the sole and exclusive
right to use all such proprietary rights without infringing or violating the
rights of any third parties and no consents of any third parties are required
for the use thereof by the Surviving Corporation. Any corporate, assumed, or
trade names utilizing the name of Shareholder may be changed at the option of
the Company prior to Closing and Premier shall acquire no interest therein.
2.12 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES. Set
forth on Exhibit 2.12 attached hereto is a true and complete list, as of the
date of this Agreement of: (a) the name of each director and officer of the
Company and the offices held by each, (b) the most recent payroll report of the
Company, showing all current employees of the Company and their current levels
of compensation, (c) promised increases in compensation of employees of the
Company that have not yet been effected, (d) oral or written employment
agreements or independent contractor agreements (and all amendments thereto) to
which the Company is a party, copies of which have been delivered to Premier,
and (e) all employee manuals, materials, policies, procedures and work-related
rules, copies of which have been delivered to Premier. The Company is in
compliance with all applicable laws, rules, regulations and ordinances
respecting employment and employment practices. The Company has not engaged in
any unfair labor practice. To the best of Company's and Shareholders' knowledge,
there are no unfair labor practices charges or complaints pending or threatened
against the Company, and the Company has never been a party to any agreement
with any union, labor organization or collective bargaining unit.
2.13 LEGAL PROCEEDINGS. Neither the Company nor any Shareholder nor
outstanding shares of the Company's stock nor any of the Company's assets is
subject to any pending, nor does the Company or any Shareholder have knowledge
of any threatened litigation, governmental investigation, condemnation or other
proceeding against or relating to or affecting the Company, any Shareholder, the
outstanding shares of the Company's stock, any of the assets of the Company, the
operations, business or prospects of the Company or the transactions
contemplated by this Agreement, and, to the knowledge of the Company and the
Shareholders, no basis for any such action exists, nor is there any legal
impediment of which the Company or any Shareholder has knowledge to the
continued operation of its business in the ordinary course, subject to consents
set forth on Exhibit 2.5.
2.14 CONTRACTS. The Company has delivered to Premier true copies of
all written, and disclosed to Premier, all oral, outstanding contracts,
obligations and commitments of the Company, excluding patient contracts (the
"Contracts"), all of which are listed or incorporated by reference on Exhibit
2.7 (in the case of leases) and Exhibit 2.14 (in the case of Contracts other
than leases) attached hereto. Except as otherwise indicated on such Exhibits, to
the best of Company's and Shareholders' knowledge, all of such Contracts are
valid, binding and enforceable in accordance with their terms and are in full
force and effect, and no defenses, offsets or counterclaims have been asserted
or may be made by any party thereto, subject to applicable bankruptcy,
insolvency, reorganization or other laws affecting the rights of creditors
generally, or to equitable principles. Except as indicated on such Exhibits,
there is not under any such Contract any existing default by the Company, or any
condition or event of which the Company or any Shareholder has knowledge which
with notice or lapse of time, or both, would constitute a default. The Company
and the Shareholders have no knowledge of any default by any other party to such
Contracts. Neither the Company nor the Shareholders have received notice of the
intention of any party to any Contract to cancel or terminate any Contract and
have no reason to believe that any amendment or change to any Contract is
contemplated by any party thereto. Other than those contracts, obligations and
commitments of the Company listed on Exhibit 2.7 and Exhibit 2.14 and any
patient contracts, the Company is not a party to any material written or oral
agreement, contract, lease or arrangement, including any:
(a) Contract related to the assets of the Company not
made in the ordinary course of business other than this Agreement;
(b) Employment, consulting or compensation agreement or
arrangement;
(c) Labor or collective bargaining agreement;
(d) Lease agreement with respect to any property, whether
as lessor or lessee;
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(e) Deed, bill of sale or other document evidencing an
interest in or agreement to purchase or sell real or personal property;
(f) Contract for the purchase of materials, supplies or
equipment (i) which is in excess of the requirements of its business now booked
or for normal operating inventories, or (ii) which is not terminable upon notice
of thirty (30) days or less;
(g) Agreement for the purchase from a supplier of all or
substantially all of the requirements of the Company of a particular product or
service;
(h) Loan agreement or other contract for money borrowed
or lent or to be borrowed or lent to another;
(i) Contracts containing non-competition covenants; or
(j) Other contracts or agreements that involve either an
unperformed commitment in excess of $1,000 or that cannot be performed in the
ordinary course of business within thirty (30) days after the date hereof or
terminated by the Company without payment of any penalty or other expense.
2.15 SUBSEQUENT EVENTS. Except as disclosed on Exhibit 2.15, the
Company has not, since the Balance Sheet Date:
(a) Incurred any material obligation or liability
(absolute, accrued, contingent or otherwise) or entered into any contract,
lease, license or commitment, except for this Agreement, other than in the
ordinary course of business or incurred any indebtedness;
(b) Discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise) other than (i) liabilities shown or
reflected on the Balance Sheet or (ii) liabilities incurred since the Balance
Sheet Date in the ordinary course of business;
(c) Formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(d) Made any payments to or loaned any money to any
person or entity other than in the ordinary course of business consistent with
past practices;
(e) Lost or terminated any employee, patient, customer or
supplier that has, individually or in the aggregate, a material adverse effect
on its business;
(f) Increased or established any reserve for taxes or any
other liability on its books or otherwise provided therefor;
(g) Mortgaged, pledged or subjected to any lien, charge
or other encumbrance any of the assets of the Company, tangible or intangible;
(h) Sold or contracted to sell or transferred or
contracted to transfer any of the assets used in the conduct of the Company's
business or canceled any debts or claims or waived any rights, except in the
ordinary course of business consistent with past practices;
(i) Except in the ordinary course of business consistent
with past practices, granted any increase in the rates of pay of employees,
consultants or agents, or by means of any bonus or pension plan, contract or
other commitment, increased the compensation of any officer, employee,
consultant or agent;
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(j) Authorized or incurred any capital expenditures in
excess of Five Thousand Dollars ($5,000);
(k) Except for this Agreement and any other agreement
executed and delivered pursuant to this Agreement, entered into any material
transaction other than as permitted hereunder;
(l) Redeemed, purchased, sold or issued any stock, bonds
or other securities to persons other than the Shareholders;
(m) Experienced damage, destruction or loss (whether or
not covered by insurance) materially and adversely affecting any of its
properties, assets or business, or experienced any other material adverse change
in its financial condition, assets, prospects, liabilities or business;
(n) Declared or paid a distribution, payment or dividend
of any kind on the capital stock of the Company;
(o) Repurchased, approved any repurchase or agreed to
repurchase any of the Company's capital stock; or
(p) Suffered any material adverse change in the business
of the Company or to the assets of the Company.
2.16 ACCOUNTS RECEIVABLE/PAYABLE. The Balance Sheet reflects the
amount, as of the Balance Sheet Date of the Company's (i) accounts receivable,
net of allowances for uncollectible and doubtful amounts ("Accounts
Receivable"), and (ii) current accounts payable and current accrued liabilities
(other than the current portion of long-term debt) ("Accounts Payable"). Exhibit
2.16 contains a true and accurate (i) list of all Accounts Receivable, and (ii)
list of all Accounts Payable and (iii) statement of the working capital
("Working Capital") of the Company as of the Balance Sheet Date. The Company
maintains its accounting records in sufficient detail to substantiate the
accounts receivable reflected on the Balance Sheet and has given and will give
to Premier full and complete access to those records, including the right to
make copies therefrom. Since the Balance Sheet Date, the Company has not changed
any principle or practice with respect to the recordation of accounts receivable
or the calculation of reserves therefor, or any material collection, discount or
write-off policy or procedure. Accounts Receivable are not recorded in amounts
estimated to be net of contractual allowances related to third-party payor
arrangements. The Company is in substantial compliance with the terms and
conditions of such third-party payor arrangements, and the reserves established
by the Company are adequate to cover any liability resulting from lack of
compliance.
2.17 TAXES. The Company has filed all tax returns required to be
filed by it, and made all payments of taxes, including any interest, penalty or
addition thereto, required to be made by it, with respect to income taxes, real
and personal property taxes, sales taxes, use taxes, employment taxes, excise
taxes and other taxes due and payable on or before the date of this Agreement.
To the best of Company's and Shareholders' knowledge, all such tax returns are
complete and accurate in all respects and properly reflect the relevant taxes
for the periods covered thereby. The Company has no tax liability, except for
real and personal property taxes and license fees for the current period not yet
due and payable and sales, use, employment and similar taxes for periods as to
which such taxes have not yet become due and payable. The unpaid taxes of the
Company did not, as of the Balance Sheet Date, exceed the reserve for taxes
(rather than any reserve for deferred taxes established to reflect timing
differences between book and income tax income) set forth on the face of the
Balance Sheet (rather than in any notes thereto), as adjusted for the passage of
time through the Closing Date (in accordance with the past custom and practice
of the Company). The Company and the Shareholders have not received any notice
that any tax deficiency or delinquency has been asserted against the Company. To
the best of Company's and Shareholders' knowledge, there are no audits relating
to taxes of the Company threatened, pending or in process. The Company is not
currently the beneficiary of any waiver of any statute of limitations in respect
of taxes nor of any extension of time within which to file any tax return or to
pay any tax assessment or deficiency. There are no liens or encumbrances
relating to taxes on, or to the best of Company's and Shareholders' knowledge,
or threatened against any of the assets of the Company. To the best of Company's
and Shareholders'
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knowledge, the Company has withheld and paid all taxes required by law to have
been withheld and paid by it. Neither the Company nor any predecessor of the
Company is or has been a party to any tax allocation or sharing agreement or a
member of an affiliated group of corporations filing a consolidated federal
income tax return. The Company has delivered to Premier correct and complete
copies of the Company's three most recently filed annual state and federal
income tax returns, together with all examination reports and statements of
deficiencies assessed against or agreed to by the Company during the three
calendar year period preceding the date of this Agreement. The Company has
neither made any payments, is obligated to make any payments, or is a party to
any agreement that under any circumstance could obligate it to make any payments
that will not be deductible under Code section 280G.
2.18 COMMISSIONS AND FEES. There are no claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
Premier, the Company or the Shareholders resulting from any action taken by the
Company or the Shareholders or their respective agents or employees, or any of
them.
2.19 LIABILITIES; DEBT. Except to the extent reflected or reserved
against on the Balance Sheet, the Company did not have, as of the Balance Sheet
Date, and has not incurred since that date and will not have incurred as of the
Closing Date, any liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, other than
those incurred in the ordinary course of business. The Company and the
Shareholders do not know, or have reasonable grounds to know, of any basis for
the assertion against the Company as of the Balance Sheet Date, of any claim or
liability of any nature in any amount not fully reflected or reserved against on
the Balance Sheet, or of any claim or liability of any nature arising since that
date other than those incurred in the ordinary course of business or
contemplated by this Agreement. All indebtedness of the Company (including
without limitation, indebtedness for borrowed money, guaranties and capital
lease obligations) is described on Exhibit 2.19 attached hereto.
2.20 INSURANCE POLICIES. The Company and each Shareholder of the
Company carries property, liability, malpractice, workers' compensation and such
other types of insurance as is customary in the industry. Valid and enforceable
policies in such amounts are outstanding and duly in force and will remain duly
in force through the Closing Date. All such policies are described in Exhibit
2.20 attached hereto and true and correct copies have been delivered to Premier.
Neither the Company nor any Shareholder has received notice or other
communication from the issuer of any such insurance policy canceling or amending
such policy or threatening to do so. Neither the Company nor any Shareholder of
the Company has any outstanding claims, settlements or premiums owed against any
insurance policy.
2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on Exhibit 2.21
attached hereto, the Company has neither established, nor maintains, nor is
obligated to make contributions to or under or otherwise participate in, (a) any
bonus or other type of compensation or employment plan, program, agreement,
policy, commitment, contract or arrangement (whether or not set forth in a
written document); (b) any pension, profit-sharing, retirement or other plan,
program or arrangement; or (c) any other employee benefit plan, fund or program,
including, but not limited to, those described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). To the best of
Company's and Shareholders' knowledge, all such plans listed on Exhibit 2.21
(individually "Company Plan," and collectively "Company Plans") have been
operated and administered in all material respects in accordance with all
applicable laws, rules and regulations, including without limitation, ERISA, the
Internal Revenue Code of 1986, as amended, Title VII of the Civil Rights Act of
1964, as amended, the Equal Pay Act of 1967, as amended, the Age Discrimination
in Employment Act of 1967, as amended, and the related rules and regulations
adopted by those federal agencies responsible for the administration of such
laws. To the best of Company's and Shareholders' knowledge, no act or failure to
act by the Company has resulted in a "prohibited transaction" (as defined in
ERISA) with respect to the Company Plans. No "reportable event" (as defined in
ERISA) has occurred with respect to any of the Company Plans. The Company has
not previously made, is not currently making, and is not obligated in any way to
make, any contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments
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Act of 1980. With respect to each Company Plan, either (i) the value of plan
assets (including commitments under insurance contracts) is at least equal to
the value of plan liabilities or (ii) the value of plan liabilities in excess of
plan assets is disclosed on the Balance Sheet, all as of the Closing Date.
2.22 ADVERSE AGREEMENTS. The Company is not, and will not be as of
the Closing Date, a party to any agreement or instrument or subject to any
charter or other corporate restriction or any judgment, order, writ, injunction,
decree, rule or regulation that materially and adversely affects the condition
(financial or otherwise), operations, assets, liabilities, business or prospects
of the Company.
2.23 COMPLIANCE WITH LAWS IN GENERAL. The Company, the Shareholders
and Company's licensed employees have complied with all applicable laws, rules,
regulations and licensing requirements, including, without limitation, the
Federal Environmental Protection Act, the Occupational Safety and Health Act,
the Americans with Disabilities Act and any environmental laws and medical waste
laws, and there exist no violations by the Company, any Shareholder or any
licensed employee of the Company of any federal, state or local law or
regulation unless the failure to do so would have no material negative impact
upon the Company. Neither the Company nor any Shareholder has received any
notice of a violation of any federal, state and local laws, regulations and
ordinances relating to the operations of the business and assets of the Company
and no notice of any pending inspection or violation of any such law, regulation
or ordinance has been received by the Company or any Shareholder unless such
notice or violation would have no material negative impact upon the Company.
2.24 MEDICARE AND MEDICAID PROGRAMS. The Company, each Shareholder
and each licensed employee of the Company is qualified for participation in the
Medicare and Medicaid programs and is party to provider agreements for such
programs which are in full force and effect with no defaults having occurred
thereunder. The Company, each Shareholder and each licensed employee of the
Company has timely filed all claims or other reports required to be filed with
respect to the purchase of services by third-party payors, and all such claims
or reports are complete and accurate, and has no liability to any payor with
respect thereto. To the best of Company's and Shareholders' knowledge, there are
no pending appeals, overpayment determinations, adjustments, challenges, audit,
litigation or notices of intent to open Medicare or Medicaid claim
determinations or other reports required to be filed by the Company, each
Shareholder and each licensed employee of the Company. Neither the Company, nor
any Shareholder, nor to the best of Company's and Shareholder's knowledge, any
licensed employee of the Company has been convicted of, or pled guilty or nolo
contenders to, patient abuse or negligence, or any other Medicare or Medicaid
program related offense and none has committed any offense which may serve as
the basis for suspension or exclusion from the Medicare and Medicaid programs.
2.25 FRAUD AND ABUSE. The Company, the Shareholders and all persons
and entities providing professional services for the Company's business have
not, to the knowledge of the Company and the Shareholders, engaged in any
activities which are prohibited under ss. 1320a-7b or ss. 1395nn of Title 42 of
the United States Code or the regulations promulgated thereunder, or related
state or local statutes or regulations, or which are prohibited by rules of
professional conduct, including, but not limited to, the following: (a)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(b) knowingly and willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (c) any failure by a claimant to disclose knowledge of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with the intent to
fraudulently secure such benefit or payment; and (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe or
rebate) directly or indirectly, overtly or covertly, in cash or in kind, or
offering to pay or receive such remuneration (i) in return for referring an
individual to a person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (ii) in return for purchasing, leasing or ordering or arranging
for, or recommending, purchasing, leasing or ordering any good, facility,
service or item for which payment may be made in whole or in part by Medicare or
Medicaid, or (e) referring a patient for designated health services to or
providing designated health services to a patient upon referral from an entity
or person with which the orthodontist or an immediate family
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member has a financial relationship, and to which no exception under ss.1395nn
of Title 42 of the United States Code applies.
2.26 NO UNTRUE REPRESENTATIONS. No representation or warranty by
the Company or any Shareholder in this Agreement, and no Exhibit or certificate
issued or executed by, or information furnished by, officers or directors of the
Company or any Shareholder and furnished or to be furnished to Premier pursuant
hereto, or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements or facts contained
therein not misleading.
2.27 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind has been declared or paid by the Company on any of its
capital stock since the Balance Sheet Date. No repurchase of any of the
Company's capital stock has been approved, effected or is pending, or is
contemplated by the Board of Directors of the Company.
2.28 BANKING RELATIONS. Set forth in Exhibit 2.28 is a complete and
accurate list of all arrangements that the Company has with any bank or other
financial institution, indicating with respect to each relationship the type of
arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect thereof.
2.29 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS. To the
best of Company's and Shareholders' knowledge, no officer, employee, director or
stockholder of the Company, or their respective spouses, children or affiliates,
owns directly or indirectly, on an individual or joint basis, any interest in,
has a compensation or other financial arrangement with, or serves as an officer
or director of, any customer or supplier or competitor of the Company or any
organization that has a material contract or arrangement with the Company. To
the best of Company's and Shareholders' knowledge, neither the Company, nor any
of its directors, officers, employees, consultants or the Shareholders nor any
affiliate of such person is, or within the last three (3) years was, a party to
any contract, lease, agreement or arrangement, including, but not limited to,
any joint venture or consulting agreement with any orthodontist, dentist,
hospital, pharmacy, or other person or entity which is in a position to make or
influence referrals to, or otherwise generate business for, the Company or to
provide services, lease space, lease equipment or engage in any other venture or
activity with the Company.
2.30 PAYORS. Exhibit 2.31 sets forth a true, complete and correct
list of the names and addresses of each payor of the Company's services which
accounted for more than ten percent (10%) of revenues of the Company in the
preceding fiscal year. To the best of Company's and Shareholders' knowledge, the
Company has good relations with all such payors and other material payors of the
Company and none of such payors has notified the Company that it intends to
discontinue its relationship with the Company or to deny any claims submitted to
such payor for payment.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PREMIER.
Premier hereby represents and warrants to the Company and the
Shareholders that the following statements are current and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement, except as set forth in the disclosure Exhibits
accompanying this Section 3) and the Effective Date. The disclosure Exhibits
will be arranged in paragraphs corresponding to the paragraphs contained in this
Section.
3.1 CORPORATE EXISTENCE; GOOD STANDING. Premier is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Premier is, or will be at Closing, duly qualified to do
business and is in good standing in the states where its ownership or leasing of
property or the conduct of its business requires it to be so qualified and in
which the failure to be duly qualified would have a material adverse effect upon
Premier, and has the corporate power and authority to carry on its business as
now conducted
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and to own, lease and operate its assets, properties and business. Premier has
in effect all federal, state, local and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry on its
business as it is now being conducted, the absence of which, either individual
or in the aggregate, would have a material adverse effect on the business,
operations, or financial condition of Premier.
3.2 CONSENTS, POWER AND AUTHORITY. Premier has corporate power to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered by it pursuant to this Agreement, and has taken
all actions required by law, its Certificate and Articles of Incorporation, its
Bylaws or otherwise, to authorize the execution, delivery and performance of
this Agreement and such related documents. This Agreement and all agreements and
documents executed and delivered in connection herewith have been, or will be as
of the Closing Date, duly executed and delivered by Premier as appropriate, and
constitute or will constitute the legal, valid and binding obligations of
Premier enforceable against Premier in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
The execution and delivery of this Agreement and the agreements related hereto
executed and delivered pursuant to this Agreement do not and, subject to the
receipt of consents to assignments of leases and other contracts where required
and the receipt of regulatory approvals where required, the consummation of the
transactions contemplated hereby will not violate, any provision of the
Certificate of Incorporation or Bylaws of Premier or any provisions of, or
result in the acceleration of, any obligation under any mortgage, lien, lease,
agreement instrument, order, arbitration award, judgment or decree to which
Premier is a party or by which it is bound.
3.3 COMMISSIONS AND FEES. Premier has not incurred any obligation
for any finder's, broker's or agent's fees in connection with the transactions
contemplated hereby.
3.4 CAPITAL STOCK. The issuance and delivery by Premier of shares
of the common stock of Premier in connection with the Merger will be as of the
Closing Date duly authorized by all necessary corporate action on the part of
Premier. The shares of Premier common stock to be issued in connection with the
Merger, when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable.
3.5 LEGAL PROCEEDINGS. Except as set forth on Exhibit 3.6, there
are no actions, suits or proceedings instituted or pending, or to Premier's
knowledge, threatened against Premier or any of its subsidiaries, or against any
property, asset, interest, or right of any of them, that are reasonably expected
to have either individually or in the aggregate a material adverse effect on the
business, operations, assets or condition (financial or otherwise) of Premier or
its subsidiaries on a consolidated basis taken as a whole or that are reasonably
expected to impede the consummation of the transactions contemplated by this
Agreement. Premier is not a party to any agreement or instrument nor subject to
any charter or other corporate restriction or any judgment, order, writ,
injunction, decree, rule, regulation, code or ordinance that might impede the
consummation of the transactions contemplated by this Agreement.
SECTION 4. Covenants of the Company and the Shareholders.
The Company and the Shareholders, jointly and severally, agree that
between the date hereof and the Closing Date:
4.1 CONSUMMATION OF AGREEMENT. The Company and the Shareholders
shall use their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions.
4.2 BUSINESS OPERATIONS. Except as specifically contemplated by
this Agreement, the Company and the Shareholders shall operate the Company's
business in the ordinary course. The Company shall not enter into any lease,
contract, indebtedness, commitment, purchase or sale or acquire or dispose of
any capital asset except in the ordinary course of business. The Company and the
Shareholders shall use their best efforts to preserve
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the business and assets of the Company intact and shall not take any action that
would have an adverse effect on the business or assets of the Company, including
without limitation, any action the primary purpose or effect of which is to
generate or preserve cash; provided that the Company may continue to operate in
the ordinary course of business. The Company and the Shareholders shall use
their best efforts to preserve intact the relationships with payors, customers,
suppliers, patients and others having significant business relations with the
Company. The Company shall collect its receivables and pay its trade payables in
the ordinary course of business. The Company shall not introduce any new method
of management, operations or accounting. On the Closing Date, the Company shall
not be engaged in the practice of orthodontics and shall not provide orthodontic
services.
4.3 ACCESS AND NOTICE. The Company and the Shareholders shall
permit Premier and its authorized representatives reasonable access to, and make
available for reasonable inspection, all of the assets and business of the
Company and all of its assets, including employees, customers and suppliers and
permit Premier and its authorized representatives to inspect and make copies of
all documents, records and information with respect to the business or assets of
the Company as Premier or its representatives may request. The Company and the
Shareholders shall promptly notify Premier in writing of (a) any notice or
communication relating to a default or event that, with notice or lapse of time
or both, could become a default, under any contract, commitment or obligation to
which the Company is a party, and (b) any material adverse change in the
Company's business, financial condition or the conditions of its assets.
4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. The
Company and the Shareholders shall use their best efforts to secure all
necessary approvals and consents of third parties to the consummation of the
transactions contemplated hereby, including consents described on Exhibit 2.5.
4.5 ACQUISITION PROPOSAL. The Company and the Shareholders shall
not, and shall use their best efforts to cause the Company's employees, agents
and representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer, including without limitation, any proposal or offer to the Shareholders,
with respect to a merger, acquisition, consolidation or similar transaction
involving, or the purchase of all or any significant portion of the assets or
any equity securities of the Company or engage in any negotiations concerning,
or provide any confidential information or data to, or have any discussions
with, any person relating to such proposal or offer, and the Company and the
Shareholders will immediately cease any such activities, discussions or
negotiations heretofore conducted with respect to any of the foregoing.
4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay or
fund completely for any accrued benefits, where applicable, or vested accrued
benefits for which the Company or any entity might have liability arising from
any salary, wage, benefit, bonus, vacation pay, sick leave, insurance,
employment tax or similar liability of the Company to any employee or other
person or entity (including, without limitation, any Company Plan and any
liability under employment contracts with the Company) allocable to services
performed prior to the Closing Date. The Company acknowledges that the purpose
and intent of this covenant is to assure that Premier shall have no liability,
directly or indirectly, at any time after the Closing Date with respect to any
of the Company's employees or similar persons or entities, including, without
limitation, any Company Plan.
4.7 EMPLOYEE MATTERS. The Company shall not, without the prior
written approval of Premier, except as required by law, increase the cash
compensation of any Shareholder or other employee or an independent contractor
of the Company, adopt, amend or terminate any compensation plan, employment
agreement, independent contractor agreement, employee policies and procedures or
employee benefit plan, take any action that could deplete the assets of any
employee benefit plan, or fail to pay any premium or contribution due or file
any report with respect to any employee benefit plan, or take any other actions
with respect to its employees or employee matters which might have an adverse
effect upon the Company, its business, assets or prospects.
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4.8 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind will be declared or paid by the Company, nor will any
repurchase of any of the Company's capital stock be approved or effected.
4.9 REQUIREMENTS TO EFFECT MERGER. The Company and each
Shareholder shall use their best efforts to take, or cause to be taken, all
actions necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all necessary
documents in form approved by counsel for the parties to this Agreement.
4.10 ACCOUNTING AND TAX MATTERS. The Company will not change in any
material respect the accounting methods or practices followed by the Company
(including any material change in any assumption underlying, or any method of
calculating, any bad debt, contingency or other reserve), except as may be
required by generally accepted accounting principles. The Company will not make
any material tax election except in the ordinary course of business consistent
with past practice, change any material tax election already made, adopt any tax
accounting method except in the ordinary course of business consistent with past
practice, change any tax accounting method, enter into any closing agreement,
settle any tax claim or assessment or consent to any tax claim or assessment or
any waiver of the statute of limitations for any such claim or assessment. The
Company will duly, accurately and timely (with regard to any extensions of time)
file all returns, information statements and other documents relating to taxes
of the Company required to be filed by it, and pay all taxes required to be paid
by it, on or before the Closing Date.
4.11 CONVERSION TRANSACTION. Prior to the Merger, the Shareholders
and the Company shall file with the Secretary of State of __________________ an
amendment to and/or a restatement of the Company's Articles of Incorporation and
shall take such other action as may be necessary to convert itself into a
general business corporation in accordance with all applicable laws, rules and
regulations. Shareholders shall form a new professional entity (the "New
Corporation") on or before Closing under which it shall conduct its orthodontic
practice and which new entity shall own any assets of the orthodontic practice
required by applicable law to be owned by the orthodontic practice.
SECTION 5. COVENANTS OF PREMIER.
Premier agrees that between the date hereof and the Closing Date:
5.1 CONSUMMATION OF AGREEMENT. Premier shall use its best efforts
to cause the consummation of the transactions contemplated hereby in accordance
with their terms and provisions. Premier will use its best efforts to take, or
cause to be taken, all actions necessary to effect the Merger under applicable
law, including without limitation the filing with the appropriate government
officials of all necessary documents in form approved by counsel for the parties
to this Agreement.
5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Premier
shall use its best efforts to secure all necessary approvals and consents of
third parties to the consummation of the transactions contemplated hereby.
SECTION 6. PREMIER CONDITIONS PRECEDENT.
The obligations of Premier hereunder are subject to the fulfillment at
or prior to the Closing Date of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Shareholders contained herein shall have been
true and correct in all respects when initially made and shall be true and
correct in all respects as of the Closing Date.
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6.2 COVENANTS AND CONDITIONS. The Company and the Shareholders
shall have performed and complied with all covenants and conditions required by
this Agreement to be performed and complied with by the Company and the
Shareholders prior to the Closing Date.
6.3 PROCEEDINGS. No action, proceeding or order by any court or
governmental body shall have been threatened orally or in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
6.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities, business or
prospects of the Company shall have occurred since the Balance Sheet Date.
6.5 DUE DILIGENCE REVIEW. By the Closing Date, Premier shall have
completed a due diligence review of the business, operations and financial
statements of the Company, the results of which shall be satisfactory to Premier
in its sole discretion.
6.6 APPROVAL BY THE BOARD OF DIRECTORS. This Agreement and the
transactions contemplated hereby shall have been approved by the Board of
Directors of Premier or a committee thereof.
6.7 SERVICE AGREEMENT. On or before the Closing Date, the New
Corporation shall execute and deliver to Premier a Service Agreement (the
"Service Agreement")[Consulting and Business Services Agreement (the "Consulting
Agreement")], in substantially the form attached hereto as Exhibit 6.7, pursuant
to which Premier will provide management [consulting] services to the New
Corporation.
6.8 EMPLOYMENT ARRANGEMENTS. Prior to the Closing Date, the
Company will terminate, and will cause each licensed employee that has a written
existing employment agreement with the Company to terminate his or her
employment agreement with the Company, and execute a separation and release
agreement ("Separation and Release Agreement"). Each Shareholder of the Company
will execute an employment agreement (the "Employment Agreements") with the New
Corporation, each in form and substance attached hereto as Exhibit 6.8.
6.9 CONSENTS AND APPROVALS. The Company and the Shareholders shall
have obtained all necessary government and other third-party approvals and
consents.
6.10 CLOSING DELIVERIES. Premier shall have received all documents,
duly executed in form satisfactory to Premier and its counsel, referred to in
Section 8.1.
6.11 DEBT AND RECEIVABLES. There shall be no indebtedness,
receivables or payables between the Company and its Shareholders or affiliates
and the Company shall not have any liabilities, including indebtedness,
guaranties and capital leases that are not approved by Premier.
6.12 DISSENTING SHARES. No holder of the Company's common stock
shall have demanded appraisal for the shares of Company common stock held by
such holder in accordance with ________________ law.
6.13 PUBLIC OFFERING OR FIRM UNDERWRITING. Premier shall have
completed on or before October 15, 1997, an initial public offering (the "IPO")
for the sale of at least $10,000,000 of the common stock of Premier.
6.14 NO CHANGE IN WORKING CAPITAL. There shall have been no
material change in the Working Capital of the Company.
SECTION 7. THE COMPANY'S AND THE SHAREHOLDER'S CONDITIONS PRECEDENT.
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The obligations of the Company and the Shareholders hereunder are
subject to fulfillment at or prior to the Closing Date of each of the following
conditions:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Premier contained herein shall have been true and correct in all
respects when initially made and shall be true and correct in all respects as of
the Closing Date.
7.2 COVENANTS AND CONDITIONS. Premier shall have performed and
complied with all covenants and conditions required by this Agreement to be
performed and complied with by Premier prior to the Closing Date.
7.3 PROCEEDINGS. No action, proceeding or order by any court or
governmental body shall have been threatened orally or in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
7.4 CLOSING DELIVERIES. The Company shall have received all
documents, duly executed in form satisfactory to the Company and its counsel,
referred to in Section 8.2.
7.5 INITIAL PUBLIC OFFERING. Premier shall have completed the IPO
on or before October 15, 1997.
SECTION 8. CLOSING DELIVERIES.
8.1 DELIVERIES OF THE COMPANY AND THE SHAREHOLDERS. At or prior to
the Closing, the Company and the Shareholders shall deliver to Premier the
following, all of which shall be in a form satisfactory to counsel to Premier:
(a) an executed original Service Agreement
[Consulting Agreement] and executed originals of all documents required by that
agreement;
(b) executed original Separation and Release
Agreements;
(c) a copy of the resolutions of the Board of
Directors of the Company authorizing the execution, delivery and performance of
this Agreement and all related documents and agreements each certified by the
Secretary as being true and correct copies of the original thereof;
(d) a copy of the resolutions of the New
Corporation authorizing the execution, delivery and performance of the Service
[Consulting] Agreement and all Employment Agreements, each certified by the
authorized representative of the New Corporation as being true and correct
copies of the original thereof;
(e) certificates of the President of the Company
and of each Shareholder, dated as of the Closing Date, (i) as to the truth and
correctness of the representations and warranties of the Company and each
Shareholder contained herein; (ii) as to the performance of and compliance by
the Company and each Shareholder with all covenants contained herein; and (iii)
certifying that all conditions precedent of the Company and each Shareholder to
the Closing have been satisfied;
(f) a certificate of the Secretary of the
Company certifying as to the incumbency of the directors and officers of the
Company and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of the Company;
(g) if applicable, a certificate of the
Secretary of the New Corporation certifying as to the incumbency of the
directors and officers of the New Corporation and as to the signatures of such
directors and officers who have executed documents delivered at the Closing on
behalf of the New Corporation;
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(h) a certificate, dated within 10 days of the
Closing Date, of the Secretary of the State of ______________ establishing that
the Company is in existence and is in good standing to transact business in its
state of incorporation;
(i) non-foreign affidavits executed by the
Company and each Shareholder;
(j) all authorizations, consents, approvals,
permits and licenses referred to in Sections 2.3 and 2.5; and
(k) the resignations of the directors and
officers of the Company as requested by Premier;
(l) a Shareholder Release in form attached
hereto as Exhibit 8.1(l) executed by each Shareholder;
(m) such other instruments and documents as
reasonably requested by Premier to carry out and effect the purpose and intent
of this Agreement; and
(n) a Receipt of Premier Stock in form attached
hereto as Exhibit 8.1(n).
8.2 DELIVERIES OF PREMIER. At or prior to the Closing, Premier
shall deliver to the Company the following, all of which shall be in a form
satisfactory to counsel to the Company and the Shareholders, as applicable:
(a) the Merger Consideration;
(b) an executed Service Agreement;
(c) a copy of the resolutions of the Board of
Directors of Premier (or a committee thereof) authorizing the execution,
delivery and performance of this Agreement and all related documents and
agreements each certified by the Secretary as being true and correct copies of
the original thereof;
(d) certificates of the President of Premier,
dated as of the Closing Date, (i) as to the truth and correctness of the
representations and warranties of Premier contained herein; (ii) as to the
performance of and compliance by Premier with all covenants contained herein;
and (iii) certifying that all conditions precedent of Premier to the Closing
have been satisfied;
(e) a certificate of the Secretary of Premier
certifying as to the incumbency of the directors and officers of Premier and as
to the signatures of such directors and officers who have executed documents
delivered at the Closing on behalf of Premier;
(f) certificates, dated within 10 days of the
Closing Date, of the Secretary of the State of Delaware establishing that
Premier is in existence and is in good standing; and
(g) such other instruments and documents as
reasonably requested by the Company or Shareholders to carry out and effect the
purpose and intent of this Agreement.
SECTION 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
9.1 NATURE AND SURVIVAL. Unless a party had knowledge of any
misrepresentation or breach of warranty as of the Closing Date of the other
party, all statements contained in this Agreement or in any Exhibit attached
hereto, any agreement executed pursuant hereto, and any certificate executed and
delivered by any party
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pursuant to the terms of this Agreement, shall constitute representations and
warranties of the Company and the Shareholders, jointly and severally, or of
Premier, as the case may be. All such representations and warranties, and all
representations and warranties expressly labeled as such in this Agreement shall
survive the date of this Agreement and for a period of one (1) year following
the Closing Date. Each party covenants with the other parties not to make any
claim with respect to such representations and warranties, against any party
after the date on which such survival period shall terminate. After the Closing
Date, with respect to all breaches of warranties and representations herein,
each party's sole remedy with respect to a breach of a warranty and
representation shall be indemnification pursuant to this Section 9.
9.2 INDEMNIFICATION BY PREMIER. PREMIER (FOR PURPOSES OF THIS
SECTION 9.2 AND, TO THE EXTENT APPLICABLE, SECTION 9.4, "INDEMNITOR"), SHALL
INDEMNIFY AND HOLD THE SHAREHOLDERS, AND THEIR RESPECTIVE AGENTS AND EMPLOYEES
(EACH OF THE FOREGOING, INCLUDING THE COMPANY AND THE SHAREHOLDERS, FOR PURPOSES
OF THIS SECTION 9.2 AND, TO THE EXTENT APPLICABLE, SECTION 9.4, AS "INDEMNIFIED
PERSON"), HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES,
ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO,
REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY
REASON OF OR RESULTING FROM ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION,
WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE
EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR
TO BE FURNISHED BY INDEMNITOR HEREUNDER. IN CONNECTION WITH INDEMNITOR'S
OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH
INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH
INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON HEREBY AGREES IN
WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS
FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO
INDEMNIFICATION HEREUNDER.
9.3 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS. THE
COMPANY AND THE SHAREHOLDERS (FOR PURPOSES OF THIS SECTION 9.3 AND, TO THE
EXTENT APPLICABLE, SECTION 9.4, "INDEMNITOR"), JOINTLY AND SEVERALLY, SHALL
INDEMNIFY AND HOLD PREMIER AND ITS RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS,
AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING PREMIER, FOR PURPOSES OF
THIS SECTION 9.3 AND, TO THE EXTENT APPLICABLE, SECTION 9.4, BEING REFERRED TO
AS "INDEMNIFIED PERSON") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES,
LOSSES, CLAIMS, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES
(INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL
THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM ANY BREACH BY
INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN
THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE,
OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, AND,
WITH RESPECT TO ALL TIMES PRIOR TO THE CLOSING DATE, ARISING FROM OR BY REASON
OF OR RESULTING FROM THE INDEMNITOR'S MANAGEMENT AND CONDUCT OF THE OWNERSHIP OR
OPERATION OF THE COMPANY AND FROM ANY ALLEGED ACT OR NEGLIGENCE OF INDEMNITOR OR
ITS EMPLOYEES, AGENTS AND INDEPENDENT CONTRACTORS IN OR ABOUT THE COMPANY'S
BUSINESS, AND WITH RESPECT TO (i) ANY VIOLATION BY THE COMPANY OR THE
SHAREHOLDERS OR THEIR CONSULTANTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
AFFILIATES OF STATE OR FEDERAL LAWS GOVERNING HEALTHCARE FRAUD AND ABUSE, OR ANY
OVERPAYMENT OR OBLIGATION ARISING OUT OF OR RESULTING FROM CLAIMS SUBMITTED TO
ANY THIRD PARTY PAYOR, WHETHER ON OR AFTER THE CLOSING DATE, (ii) TAXES OF THE
COMPANY OR ANY OTHER PERSON (INCLUDING ANY SHAREHOLDER) ARISING FROM OR AS A
RESULT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (iii) ANY LIABILITY
OF THE COMPANY OR THE SHAREHOLDERS FOR COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, ATTORNEYS' FEES) INCURRED IN
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CONNECTION WITH THE NEGOTIATION, PREPARATION OR CLOSING OF TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR THE OTHER DOCUMENTS TO BE EXECUTED IN
CONNECTION HEREWITH, (iv) ANY ACCRUED UNFUNDED RETIREMENT OR PENSION PLAN
LIABILITIES, (v) ANY CLAIM AGAINST OR LIABILITY OF THE COMPANY THAT IS OF A
NATURE THAT, IF KNOWN AT THE CLOSING WOULD HAVE BEEN REQUIRED TO HAVE BEEN
DISCLOSED PURSUANT TO THIS AGREEMENT, AND (vi) ANY LIABILITIES THAT ARE PAST DUE
AS OF THE CLOSING DATE, THAT ARE NOT REFLECTED ON THE BALANCE SHEET, THAT ARE
NOT INCURRED IN THE ORDINARY COURSE OF BUSINESS AND THAT ARE OTHERWISE EXCLUDED
PURSUANT TO THE TERMS OF THIS AGREEMENT. IN CONNECTION WITH INDEMNITOR'S
OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH
INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH
INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON HEREBY AGREES IN
WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS
FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO
INDEMNIFICATION HEREUNDER.
9.4 INDEMNIFICATION PROCEDURE. Within sixty (60) days after
Indemnified Person receives written notice of the commencement of any action or
other proceeding in respect of which indemnification or reimbursement may be
sought hereunder, or within such lesser time as may be provided by law for the
defense of such action or proceeding, such Indemnified Person shall notify
Indemnitor thereof. If any such action or other proceeding shall be brought
against any Indemnified Person, Indemnitor shall, upon written notice given
within a reasonable time following receipt by Indemnitor of such notice from
Indemnified Person, be entitled to assume the defense of such action or
proceeding with counsel chosen by Indemnitor and reasonably satisfactory to
Indemnified Person; provided, however, that any Indemnified Person may at its
own expense retain separate counsel to participate in such defense.
Notwithstanding the foregoing, Indemnified Person shall have the right to employ
separate counsel at Indemnitor's expense and to control its own defense of such
action or proceeding if, in the reasonable opinion of counsel to such
Indemnified Person, (a) there are or may be legal defenses available to such
Indemnified Person or to other Indemnified Persons that are different from or
additional to those available to Indemnitor and which could not be adequately
advanced by counsel chosen by Indemnitor, or (b) a conflict or potential
conflict exists between Indemnitor and such Indemnified Person that would make
such separate representation advisable; provided, however, that in no event
shall Indemnitor be required to pay fees and expenses hereunder for more than
one firm of attorneys of Indemnified Person in any jurisdiction in any one
action or proceeding or group of related actions or proceedings. Indemnitor
shall not, without the prior written consent of any Indemnified Person, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding to which such Indemnified Person is a
parry unless such settlement, compromise or consent includes an unconditional
release of such Indemnified Person from all liability arising or potentially
arising from or by reason of such claim, action or proceeding.
9.5 CERTAIN TAX MATTERS.
(a) Shareholders shall prepare and file or cause
to be prepared and filed any tax returns, statements and reports ("Tax Returns")
of the Company covering taxable periods ending on or before the Closing Date
which have not been filed on or before the Closing Date. Shareholders shall,
jointly and severally, reimburse, indemnify and hold harmless Premier for all
taxes, and all related interest, penalties and additions to tax with respect to
taxable periods of the Company ending on or before the Closing Date.
(b) Premier shall prepare and file or cause to
be prepared and filed any Tax Returns of Surviving Corporation covering taxable
periods which begin before the Closing Date and end after the Closing Date
("Straddle Periods") taking into account any reasonable reportable positions
advocated and requested by Shareholders for such Straddle Periods. Shareholders
shall, jointly and severally, within fifteen (15) days after payment thereof and
notice of such payment, reimburse, indemnify and hold harmless Premier and the
Surviving Corporation for all Taxes for any Straddle Period, to the extent
related to the portion of the Straddle Period ending on the Closing Date. For
such purposes, the portion of any tax attributable to the portions of a Straddle
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Period ending on the Closing Date and beginning after the Closing Date shall be
determined by apportioning the tax for the entire Straddle Period among such
periods based on the number of days in each such period, provided that, in the
case of taxes based upon or related to income or receipts, such portion shall be
the amount of tax which would have been due if the relevant Straddle Period
ended on the Closing Date.
(c) The Company, Shareholders and Premier shall
reasonably cooperate with each other in connection with the reporting and filing
of Tax Returns pursuant to this Section 9.5 and any audit, litigation or other
proceeding with respect to taxes. Such cooperation shall include the provision
of copies, at the requesting party's expense, of records and information
relevant to any such Tax Return or proceeding and making employees available on
a mutually convenient basis to provide additional information and explanation of
any material provided hereunder.
9.6 RIGHT OF SET-OFF. In the event of any breach of warranty,
representation, covenant or agreement by the Company or the Shareholders giving
rise to indemnification under Section 9.3 or Section 9.5 hereof, Premier shall
be entitled to offset the amount of damages incurred by it as a result of such
breach of warranty, representation, covenant or agreement against any amounts
payable by Premier to the Shareholders or their affiliates.
SECTION 10. TERMINATION. This Agreement may be terminated:
(a) at any time by mutual agreement of all
parties;
(b) at any time by Premier if at any time prior
to the Closing Date any representation or warranty of the Company or any
Shareholder contained in this Agreement or in any certificate or other document
executed and delivered by the Company or any Shareholder pursuant to this
Agreement is or becomes untrue or breached in any material respect or if the
Company or any Shareholder fails to comply in any material respect with any
covenant or agreement contained herein, and any such misrepresentation,
noncompliance or breach is not cured, waived or eliminated within twenty (20)
days after receipt of written notice thereof;
(c) at any time by the Company or the
Shareholders if at any time prior to the Closing Date any representation or
warranty of Premier contained in this Agreement or in any certificate or other
document executed and delivered by Premier pursuant to this Agreement is or
becomes untrue in any material respect or Premier fails to comply in any
material respect with any covenant or agreement contained herein and such
misrepresentation, noncompliance or breach is not cured, waived or eliminated
within twenty (20) days of written notice thereof;
(d) by Premier, the Company or the Shareholders
if the merger contemplated hereby or the IPO shall not have been consummated by
October 15, 1997; or
(e) by Premier at any time prior to the Closing
Date if Premier determines in its sole discretion as the result of its legal,
financial and operational due diligence with respect to the Company, that such
termination is desirable and in the best interests of Premier.
SECTION 11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Shareholders
recognize and acknowledge that they had in the past, currently have, and in the
future may possibly have, access to certain confidential information of Premier
and Surviving Corporation that is valuable, special and unique assets of
Premier's and Surviving Corporation's businesses. The Shareholders hereby agree
that they will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
unless (i) such information becomes available to or known by the public
generally through no fault of the Shareholders, (ii) disclosure is required by
law or the order of any governmental authority under color of law,
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provided, that prior to disclosing any information pursuant to this clause (ii),
the Shareholders shall, if possible, give prior written notice thereof to the
other parties hereto, and provide such other parties hereto with the opportunity
to contest such disclosure, (iii) the Shareholders reasonably believe that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, or (iv) the Shareholders are the sole and exclusive owner of
such confidential information as a result of the transactions contemplated
hereunder or otherwise. In the event of a breach or threatened breach by the
Shareholders of the provisions of this Section 11, Premier or Surviving
Corporation shall be entitled to an injunction restraining the Shareholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Premier or Surviving Corporation from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages. The obligations of the parties under this Section 11 shall
survive the termination of this Agreement.
SECTION 12. INVESTMENT AND SECURITIES REPRESENTATIONS
12.1 ECONOMIC RISK; SOPHISTICATION. The Shareholders represent that
they are able to bear the economic risk of an investment in Premier common stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment and therefore have the capacity to protect their own interests in
connection with the acquisition of the Premier common stock. The Shareholders or
their respective representatives have had an adequate opportunity to ask
questions and receive answers from the officers of Premier concerning any and
all matters relating to the background and experience of the officers and
directors of Premier, the plans for the operations of the business of Premier,
and any plans for additional acquisitions and the like. The Shareholders or
their respective representatives have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
12.2 COMPLIANCE WITH LAW. Shareholders represent and warrant that
none of the shares of Premier stock issued to Shareholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of,
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and regulations of the SEC and applicable state securities
laws and regulations. All certificates evidencing shares of Premier stock issued
hereunder shall bear the following restrictive legend, as well as any legend
required by the securities or blue sky laws of the state where Premier resides:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY JURISDICTION AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AFTER RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT AN EXEMPTION
FROM REGISTRATION IS AVAILABLE UNDER APPLICABLE SECURITIES LAWS.
12.3 ACCREDITED INVESTOR STATUS. Each of the Shareholders
represents and warrants that he or she is an "accredited investor" as defined in
Rule 501(a) under the 1933 Act.
12.4 PIGGYBACK REGISTRATION RIGHTS. Premier has no obligation to
register the shares of Premier stock that Shareholders will receive under this
Agreement. Provided, however, in the event Premier, at any time within 24 months
after the Closing, contemplates and undertakes a public offering of its shares
of Common Stock and the filing of a registration statement with the SEC in
connection therewith, Premier shall notify the Shareholders in writing of the
proposed offering and of any material terms and conditions of the offering known
to Premier. Premier shall use all reasonable efforts to have included in such
registration statement all or any portion of the shares distributed to
Shareholders hereunder, subject, however, to such terms, conditions and
limitations
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(including but not limited to the number of shares that Shareholders may offer
to sell in such registration statement) as any underwriter retained by Premier
in connection with such offering may require, and provided that the public
offering and sale of such shares is not restricted by any legend or other
condition imposed by any state securities commissioner. Shareholders shall take
all such action and execute all such documents including, but not limited to,
the execution and delivery of an underwriting agreement in form and substance in
all material respects the same as the underwriting agreement to be signed by
Premier, as may be requested by Premier. The cost of such public offering shall
be borne by Premier, except that Shareholders shall pay its proportionate share
of underwriters' commissions and discounts and the costs and fees of any
attorneys, accountants and other persons retained by Shareholders in connection
with the offering. The provisions of this Section 12.4 shall not apply to
registration statements filed in connection with employee stock purchase and
option programs by Premier or in connection with actual or proposed acquisitions
by Premier. Shareholders shall notify Premier of its election to exercise its
rights herein specified in writing within thirty (30) days after the aforesaid
written notice to the Shareholders by Premier.
SECTION 13. MISCELLANEOUS.
13.1 NOTICES. Any communications required or desired to be given
hereunder shall be deemed to have been properly given if sent by hand delivery,
or by facsimile AND overnight courier, to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to Premier:
Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard, Suite 200
Torrance, California 90505
Attn: Mr. Sam Westover, President
Facsimile: (310) 791-5660
Telephone: (310) 791-5657
with a copy of each notice directed to Premier to:
Nelson Mullins Riley & Scarborough, L.L.P.
999 Peachtree Street, N.E.
First Union Plaza, Suite 1400
Atlanta, Georgia 30309
Attn: Paul A. Quiros, Esquire
Facsimile: (404) 817-6050
Telephone: (404) 817-6103
If to the Company or the Shareholders:
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
Facsimile:
22
<PAGE> 23
with a copy to:
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications, properly addressed and postage prepaid with the overnight
courier.
13.2 FURTHER ASSURANCES; ACCOUNTS RECEIVABLE. Each party hereby
agrees to perform any further acts and to execute and deliver any documents
which may be reasonably necessary to carry out the provisions of Agreement.
Shareholders shall assist Premier and Surviving Corporation in collecting the
accounts receivable of the Company acquired by Premier in connection with this
transaction and in the event that any Shareholder shall receive the proceeds of
any such accounts receivable, shall immediately forward such amounts to
Surviving Corporation.
13.3 EACH PARTY TO BEAR COSTS. Each of the parties to this
Agreement shall pay all of the costs and expenses incurred by such party in
connection with the transactions contemplated by this Agreement, whether or not
such transactions are consummated. Without limiting the generality of the
foregoing and whether or not such liabilities may be deemed to have been
incurred in the ordinary course of business, Premier and Surviving Corporation
shall not be liable to or required to pay, either directly or indirectly, any
(a) fees and expenses of legal counsel, accountants, auditors or other persons
or entities retained by the Company, the New Corporation or the Shareholders for
services rendered in connection with negotiating and closing the transactions
contemplated by this Agreement or the documents to be executed in connection
herewith, whether or not such costs or expenses are incurred before or after the
Closing Date and the Shareholders shall be liable for all such costs and
expenses of the Company, and (b) local, state and federal income taxes or other
similar charges on income or gain incurred by the Company, the New Corporation
or the Shareholders as a result of the transactions contemplated hereby.
13.4 PUBLIC DISCLOSURES. Except as otherwise required by law, no
party to this Agreement shall make any public or other disclosure of this
Agreement or the transactions contemplated hereby without the prior consent of
the other parties. The parties to this Agreement shall cooperate with respect to
the form and content of any such disclosures.
13.5 GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND APPLIED
WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES.
13.6 CAPTIONS. The captions or headings in this Agreement are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement.
13.7 INTEGRATION OF EXHIBITS. All Exhibits attached to this
Agreement are integral parts of this Agreement as if fully set forth herein, and
all statements appearing therein shall be deemed disclosed for all purposes and
not only in connection with the specific representation in which they are
explicitly referenced.
23
<PAGE> 24
13.8 ENTIRE AGREEMENT/AMENDMENT. THIS INSTRUMENT, INCLUDING ALL
EXHIBITS ATTACHED HERETO, CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES AND
SUPERSEDES ANY AND ALL PRIOR OR CONTEMPORANEOUS AGREEMENTS BETWEEN THE PARTIES,
WRITTEN OR ORAL, WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY.
13.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute and be one and the same
instrument
13.10 BINDING EFFECT/ASSIGNMENT. This Agreement shall be assignable
by Premier to (i) any person, firm or corporation that controls or is under
common control with Premier, (ii) US Orthodontic Care, Inc. ("USOC") or any
person, firm or corporation that controls or is under common control with USOC,
or (iii) any entity that results from a merger or other combination between
Premier and USOC ("Newco") and any person, firm or corporation that
controls or is under common control with Newco. Except as set forth above, no
party shall have the right to assign their respective rights and obligations
hereunder without the written consent of the other party, which consent shall
not be unreasonably withheld. In considering whether or not to grant or withhold
consent, it shall be deemed reasonable for the Orthodontic Entity to take into
account the management style, philosophy and performance of such proposed
assignee, in addition to any other commercially reasonable facts and
circumstances at the time. Subject to this provision, this Agreement shall be
binding upon the parties hereto, and their successors and assigns.
13.11 AMENDMENTS; WAIVER. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of the terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
13.12 ARBITRATION. Any controversy, dispute or disagreement arising
out of or relating to this Agreement, the breach thereof, or the subject matter
thereof, shall be settled exclusively by binding arbitration, which shall be
conducted in Los Angeles, California in accordance with the Commercial
Arbitration Rules administered by the American Arbitration Association before a
single arbitrator selected by the parties jointly. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
13.13 SERVICE OF PROCESS. Service of any and all process that may be
served on any party hereto in any suit, action or proceeding arising out of this
Agreement may be made in the manner and to the address set forth in Section 13.1
and service thus made shall be taken and held to be valid personal service upon
such party by any party hereto on whose behalf such service is made.
13.14 SEVERABILITY. If any provision of this Agreement shall be
found to be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable and this Agreement shall be construed and
enforced as if such provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect. In lieu of such
provision, there shall be added automatically as part of this Agreement, a
provision as similar in its terms to such provision as may be possible and be
legal, valid and enforceable.
13.15 KNOWLEDGE. For purposes of this Agreement, "knowledge" means
actual knowledge of any part, or its Shareholders, partners, officers and
directors after reasonable investigation.
24
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PREMIER ORTHODONTIC GROUP, INC.
By:
-------------------------
Its:
------------------------
COMPANY:
- ---------------------------- SHAREHOLDERS:
By:
------------------------- -------------------------
Its: , D.M.D.
------------------------ -------------------
25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
2.1 Capitalization of the Company; Partnership/Joint Venture Agreements to which the
Company is a party
2.3 Permits and Licenses
2.5 Consents
2.6 Financial Statements
2.7 Leases
2.9 Personal Property; Encumbrances
2.11 Patents and Trademarks; Names
2.12 Directors and Officers; Payroll Information
2.14 Contracts (other than Leases)
2.16 Accounts Receivable/Accounts Payable
2.19 Debt
2.20 Insurance Policies
2.21 Employee Benefit Plans
2.28 Suppliers
2.29 Banking Relations
2.31 Payors
3.6 Legal Proceedings
4.1 Capitalization of New Corporation
4.4 New Corporation Assets
8.7 Form of Service Agreement
8.8 Employment Agreement
10.1(m) Shareholder Release
10.1(o) Receipt of Premier Stock
</TABLE>
26
<PAGE> 27
ANNEX I
MERGER CONSIDERATION
The consideration to be received by the Shareholders pursuant to the
Agreement (the "Merger Consideration") is payable as follows:
Premier hereby agrees to pay to the Shareholders Premier common stock
and cash totaling an amount equal to at least one hundred (100%) of the
Company's 1996 Adjusted Gross Revenues (as hereinafter defined) less the amount,
if any, of any liabilities of the Company assumed by the Surviving Corporation
in connection with the transactions contemplated by this Agreement, with the
actual amount to be determined upon completion of an initial public offering of
Premier's common stock (the "IPO") (as finally determined, the "Purchase
Price"), which final Purchase Price shall be the respective Shareholders'
proportional interest in the sum of the value of all of the orthodontic entities
included in the IPO, which sum shall constitute 62% of the total market
capitalization of Premier without giving effect to the IPO. The valuation for
determining the final Purchase Price of each orthodontic entity included in the
IPO shall be based on the Adjusted Gross Revenues and operating results of each
such orthodontic entity for the trailing twelve-month period used in preparation
of Premier's registration statement on Form S-1 with respect to the IPO. The
Purchase Price shall be paid as follows:
(a) Up to a maximum of 20% of the Purchase Price shall be
paid in cash or immediately available funds at Closing; and
(b) The remainder of the Purchase Price to be paid to the
Shareholders in stock of Premier to be valued at the time of the IPO,
which IPO shall occur simultaneously with the Closing.
As used herein, the term "1996 Adjusted Gross Revenue" shall be
determined in accordance with generally accepted accounting principles and shall
mean all fees and charges recorded or booked in fiscal year 1996 by or on behalf
of the Company as a result of professional orthodontic services personally
furnished to patients by the Orthodontist(s) and those under the Orthodontist's
supervision and other fees or income generated in their capacity as
professionals after any adjustments for uncollectible accounts, professional
courtesies and other activities that do not generate a collectible fee.
<PAGE> 28
EXHIBIT 10.1(m)
SHAREHOLDER RELEASE
THIS SHAREHOLDER RELEASE (this "Release") is made by _________________,
D.M.D., and _______________________, D.M.D.(collectively, the "Shareholders").
WHEREAS, __________________________________, (the "Company"), the
Shareholders, and US Orthodontic Care, Inc., a Georgia corporation ("Premier")
have entered into an Agreement and Plan of Reorganization (the "Agreement")
whereby the Company will be merged into Premier; and
WHEREAS, the Shareholders are directors and/or officers and employees
of the Company;
WHEREAS, pursuant to the Agreement, this Release is a condition to
Premier entering into the Agreement and consummating the transactions
contemplated thereby;
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Shareholders hereby agree as follows:
1. Release. The Shareholders hereby unconditionally release and
forever discharge the Company, their respective subsidiaries and other
affiliated companies and their respective agents, employees, representatives,
officers, directors, stockholders, trustees and attorneys, past and present, and
the heirs, successors and assigns of all of the foregoing (collectively, the
"Released Parties"), from any and all debts, liabilities, claims, demands,
actions or causes of action, suits, judgments or controversies of any kind
whatsoever (collectively, the "Claims") against the Released Parties, that now
exist or that may arise in the future out of any matter, transaction or event
occurring prior to the date hereof, including without limitation: (i) claims by
the Shareholders with respect to repayment of loans or indebtedness, (ii) any
rights, titles and interests in, to and under any agreements, arrangements or
understandings to which any of the Shareholders is a party and (iii) claims by
the Shareholders with respect to dividends, violation of preemptive rights, or
payment of salaries or other compensation or in any way arising out of or in
connection with his employment with the Company, the cessation of such
employment, his status as an officer, director or stockholder of the Company or
otherwise. The Shareholders further agrees not to file or bring any claim, suit,
civil action, complaint, arbitration or administrative action in any city, state
or federal court or agency or arbitration tribunal with respect to any Claim.
Provided, however, this General Release shall not in any way whatsoever apply to
those obligations of the Company relating to the Agreement and the related and
ancillary agreements thereto, dated as of ____________________.
2. Disclaimer of Liability. The Shareholders acknowledge that
this Release shall not in any way be construed as an admission by any of the
Released Parties of any wrongful or illegal act against the Shareholders or any
other person, and that the Released Parties expressly disclaim any liability of
any nature whatsoever arising from or related to the subject of this Release.
3. Competency. The Shareholders acknowledge that they fully
comprehend and understand all of the terms of this Release and their legal
effects. The Shareholders hereby further expressly warrant that they are
competent to execute this Release, that it is executed knowingly and voluntarily
and without reliance upon any statement or representation of any Released Party
or its representatives, and that they had the opportunity to consult with an
attorney of their choice regarding this Release.
4. Parties in Interest. This Release is for the benefit of the
Released Parties and shall be binding upon the Shareholders and their legal
representatives and heirs.
32
<PAGE> 29
5. Governing Law. This Release and the rights and obligations of
the Shareholders hereunder shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing conflict of
laws) of the State of Georgia.
6. Amendment. This Release may not be clarified, modified,
changed or amended except in writing and signed by each Shareholders or their
respective duly authorized representatives, the Company, and Premier.
7. Severability. If any provision of this Release is held to be
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable and this Release shall be construed and enforced as if
such illegal, invalid or unenforceable provision never comprised a part hereof;
and the remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision, and
there shall be added automatically as part of this Release a provision as
similar in its terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
IN WITNESS WHEREOF, the Shareholders have executed this Release as of
the ____ day of ____________________, 1997.
WITNESS:
- ----------------------------------- --------------------------------
D.M.D.
----------------
- -----------------------------------
- ----------------------------------- --------------------------------
D.M.D.
----------------
- -----------------------------------
33
<PAGE> 1
EXHIBIT 2.4
FORM OF
STOCK PURCHASE AND SALE AGREEMENT
THIS STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into as of this ______ day of _______________, _______, by and among US
Orthodontic Care, Inc., a Georgia corporation ("Purchaser"), and
_________________, an orthodontist and resident of the state of
________________ ("Seller").
W I T N E S S E T H
WHEREAS, Seller is the sole stockholder of _____________________, a
____________________________ (the "Corporation"), which owns certain assets
used to operate an orthodontic practice in _____________ with offices located
in the facilities set forth in Exhibit A (the "Facilities") attached hereto;
WHEREAS, Seller wishes to sell to Purchaser all of Seller's right,
title and interest in and to all of the outstanding shares of capital stock of
the Corporation (the "Orthodontic Stock"), and Purchaser wishes to buy all of
Seller's right, title and interest in and to the Orthodontic Stock subject to
and upon the terms and conditions set forth herein;
WHEREAS, Seller and Purchaser intend that the sale contemplated
hereunder, together with (i) the acquisition of the other founding practices,
(ii) the merger between Purchaser and Premier Orthodontic Group, Inc.
("Premier"), and (iii) the initial public offering, will constitute an
integrated unitary transaction and will qualify for non-recognition treatment
under Section 351 of the Internal Revenue Code.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt, adequacy, and sufficiency of which are hereby acknowledged, Seller and
Purchaser hereby agree as follows:
SECTION I. PURCHASE AND SALE OF ORTHODONTIC STOCK AND CLOSING.
A. PURCHASE. Upon the terms and conditions set forth herein, Seller
shall sell to Purchaser and Purchaser shall purchase from Seller all of
Seller's right, title and interest in and to the Orthodontic Stock, free and
clear of all liens, charges, encumbrances, claims, options, and other
restrictions of any nature whatsoever.
B. DELIVERY OF ORTHODONTIC STOCK. At Closing (as hereinafter defined)
Seller shall deliver to Purchaser validly issued certificates representing the
Orthodontic Stock, together with stock powers duly executed in blank. Seller
shall
<PAGE> 2
execute and deliver such instruments of conveyance, sale or transfer, and shall
take or cause to be taken such further action as the Purchaser or its counsel
shall request at any time or from time to time to vest, confirm or evidence in
the Purchaser good and marketable title to all of the Orthodontic Stock
intended to be conveyed, sold, transferred and delivered to the Purchaser
hereunder.
C. CLOSING DATE. The sale, transfer and delivery of the Orthodontic
Stock pursuant to the terms of this Agreement and the delivery of the Purchase
Price (as hereinafter defined) shall take place as soon as all appropriate
conditions as set forth herein have been fulfilled, but in no event later than
October 15, 1997, at the offices of Nelson Mullins Riley & Scarborough, L.L.P.,
First Union Plaza, Suite 1400, 999 Peachtree Street, Atlanta, Georgia 30309, or
at such other place and date as Purchaser and Seller shall agree. The date on
which the last of all payments and deliveries occurs is the "Closing Date", and
such payments and deliveries constitute the "Closing." The parties hereto shall
use their reasonable best efforts to satisfy all appropriate conditions as soon
as possible.
SECTION II. PURCHASE PRICE AND EXPENSES.
A. PURCHASE PRICE. Purchaser hereby agrees to pay to Seller for the
Orthodontic Stock at least one hundred twenty percent (120%) of the
Corporation's 1996 Adjusted Gross Revenues (as hereinafter defined), with the
actual amount to be determined upon completion of an initial public offering of
Purchaser's common stock (the "IPO") (as finally determined, the "Purchase
Price"), which final Purchase Price shall be the Seller's proportional interest
in the sum of the value of all of the orthodontic entities included in the IPO,
which sum shall constitute 62% of the total market capitalization of Purchaser
without giving effect to the IPO. The valuation for determining the final
Purchase Price of each orthodontic entity included in the IPO shall be based on
the adjusted gross revenues and operating results of each such orthodontic
entity for the trailing twelve-month period used in preparation of Purchaser's
registration statement on Form S-1 with respect to the IPO. The Purchase Price
shall be paid as follows:
1. Up to a maximum of 20% of the Purchase Price shall be paid
in cash or immediately available funds at Closing; and
2. The remainder of the Purchase Price to be paid to Seller
in common stock of Purchaser ("Purchaser Stock") to be valued at the
time of the IPO, which IPO shall occur simultaneously with the
Closing.
As used herein, the term "1996 Adjusted Gross Revenue" shall be determined in
accordance with generally accepted accounting principles and shall mean all
fees and charges recorded or booked in fiscal year 1996 by or on behalf of the
Seller as a result of professional orthodontic services personally furnished to
patients by the orthodontist(s) and those under the orthodontist's supervision
and other fees or income generated in their capacity as professionals after any
adjustments for
2
<PAGE> 3
uncollectible accounts, professional courtesies and other activities that do
not generate a collectible fee.
B. COSTS AND EXPENSES. Each party to this Agreement shall pay its
fees, costs and expenses and those of its agents, accountants, lawyers and
investment advisors, whether or not the transactions contemplated hereby are
consummated in accordance with the terms of this Agreement.
SECTION III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
SELLER.
Seller hereby represents, warrants and covenants to Purchaser that the
following statements are accurate and complete as of the date hereof and will
be accurate and complete as of the Closing Date, and acknowledges and confirms
that Purchaser is relying upon such representations, warranties and covenants
in connection with the execution, delivery and performance of this Agreement,
notwithstanding any investigation made by Purchaser or on its behalf:
A. ORGANIZATION OF CORPORATION. The Corporation is duly organized,
validly existing and in good standing under the laws of the State of
_______________ and has the power and authority to own and lease its property,
and to carry on its business as and where such business is now conducted. The
Corporation does not own stock or any other equity interest in any other
entity.
B. ORTHODONTIC STOCK. Seller is the sole stockholder of the
Corporation and has good and marketable title to the Orthodontic Stock, and the
right to sell, transfer and deliver the Orthodontic Stock to Purchaser, free
and clear of all liens, encumbrances, claims, security interests, pledges,
agreements and rights of third parties, and upon delivery of the Orthodontic
Stock to Purchaser, Purchaser will hold good and marketable title to the
Orthodontic Stock free and clear of all liens, encumbrances, claims, security
interests, pledges, agreements and rights of third parties whatsoever. Each
share of Orthodontic Stock has been legally and validly issued and fully paid
and nonassessable. No shares of Orthodontic Stock are owned by the Corporation
in treasury. There are no outstanding (a) bonds, debentures, notes or other
obligations the holders of which have the right to vote with the Seller on any
matter, (b) securities of the Corporation convertible into equity interests in
the Corporation, or (c) commitments, options, rights or warrants to issue any
such equity interests in the Corporation, to issue securities of the
Corporation convertible into such equity interests, or to redeem any securities
of the Corporation. No shares of Orthodontic Stock have been issued or disposed
of in violation of the preemptive rights, rights of first refusal or similar
rights of any of the Corporation's stockholders.
C. TITLE TO ASSETS. The Corporation has good and marketable title to
the assets used at the Facilities by the Corporation, free and clear of all
liens,
3
<PAGE> 4
encumbrances, claims, security interests, charges, pledges and rights of
others, except as disclosed on Exhibit B.
D. BINDING EFFECT. This Agreement and each of the agreements and
instruments contemplated hereby has been duly and validly executed and
delivered by the Seller and constitutes the legal, valid and binding
obligations of the Seller, enforceable in accordance with its terms.
E. NO CONFLICTS. To the best of Seller's knowledge, the execution,
delivery and performance by the Seller of this Agreement or any agreements
required hereby to be executed by Seller, will not constitute a violation of
any statute, ordinance, judgment, order, decree, regulation or rule of any
court, governmental authority or arbitrator, or any license, permit or
franchise applicable or relating to the Corporation or result in the creation
of any lien upon the Orthodontic Stock or the Corporation's assets pursuant to
the provisions of any of the foregoing.
F. CORPORATION'S ASSETS. Upon Closing, the Corporation's Assets will
be in good condition comparable to the condition existing on the date of this
Agreement, ordinary wear and tear excepted. Seller shall not remove any
property from the Facilities prior to the Closing, except for the purpose of
repair or replacement or in the ordinary course of business, and any such
property or its replacement, as the case may be, shall be property of the
Corporation. Seller shall keep all insurance policies or renewals thereof
affecting or covering the Facilities in full force and effect up to and
including the date of Closing unless the reason for such policies ceases or
such policies are replaced in the ordinary course of business.
G. TAXES. Except as set forth on Exhibit C, the Corporation has timely
filed or caused to be timely filed all federal income tax returns and all other
federal, state, county, local or city tax returns which are required to be
filed, and has paid or caused to be paid all taxes, including interest,
penalties or additions thereto, shown on such returns or on any tax assessment
received by them (including, without limitation, real and personal property
taxes) to the extent that such taxes have become due and payable on or before
the Closing Date. The Corporation has no tax liability, except for real and
personal property taxes for periods as to which such taxes have not yet become
due and payable. No events have occurred which could impose on Purchaser any
liability for any taxes, penalties, or interest due or to become due from
Seller or Corporation. The Corporation and the Seller have not received any
notice that any tax deficiency or delinquency has been asserted against the
Corporation. To the best of the Seller's knowledge, the Corporation has
withheld and paid all taxes required by law to have been withheld and paid by
it.
H. CLAIMS AND LEGAL ACTIONS. Except as set forth on Exhibit D, there
is no claim, legal action, counterclaim, suit, arbitration, governmental
investigation or
4
<PAGE> 5
other legal, administrative or tax proceeding, nor any order, decree or
judgment, in progress, pending, or threatened against or relating to the
Seller, the Corporation, or the Facilities, nor does Seller know or have reason
to be aware of any basis for the same.
I. SUBSEQUENT EVENTS. Except as disclosed on Exhibit E, the
Corporation has not, since December 31, 1995: (i) incurred any material
obligation or liability, entered into any contract, lease, license or
commitment, or incurred any indebtedness other than in the ordinary course of
business; (ii) made any payments to or loaned any money to any person or entity
other than in the ordinary course of business consistent with past practices;
(iii) lost or terminated any employee or supplier that has had or may have,
individually or in the aggregate, a material adverse effect on the
Corporation's business; (iv) mortgaged, pledged or subjected to any lien,
charge or other encumbrance any of the assets of the Corporation; (v) sold,
transferred or contracted to sell or transfer any of the Corporation's assets
(other than assets that the Corporation is prohibited from owning under
applicable law subsequent to the Closing, or assets of the Corporation not
directly used in connection with the operation of the Facilities), except in
the ordinary course of business consistent with past practices; (vi) redeemed,
purchased, sold or issued any stock, bonds or other securities to persons other
than the Seller; (vii) declared or paid a distribution, payment or dividend of
any kind on the capital stock of the Corporation; or (viii) suffered any
material adverse change in the business of the Corporation or to the assets of
the Corporation.
J. CONSENTS. Except as set forth on Exhibit F, there are no persons
whose consent is necessary for Seller to consummate the transactions
contemplated by this Agreement. Each party hereto agrees to cooperate with each
other party to obtain the consents, approvals and authorizations of third
parties and governmental authorities that any such party reasonably determines
to be necessary to consummate the transactions contemplated by this Agreement.
K. NO MANAGEMENT CONTRACT OR LEASE. Except for any lease agreement(s)
between Seller and Seller's landlord(s) (copies of which lease agreement(s)
have been provided to Purchaser by Seller), there will be no management
contracts or leases for the Facilities at the time of Closing.
L. ACCURACY OF INFORMATION. No representations, warranties or
covenants by Seller, nor any statement, list or certificate furnished or to be
furnished to Purchaser pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of fact or
omits or will omit to state a fact necessary to make the statements contained
therein not misleading in light of the circumstances under which they were
made.
M. NOTICE AS TO CHANGES. Seller will promptly advise Purchaser in
writing of the occurrence of any events of which Seller becomes aware after the
date of
5
<PAGE> 6
this Agreement and prior to Closing relating to any of the matters which are
the subject of the covenants, representations and warranties contained herein.
N. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The warranties,
representations and covenants of the Seller contained in this Agreement shall
be true and correct as of the Closing Date with the same force and effect as if
given and made on and as of the date and time of Closing, and such
representations, warranties and covenants shall survive the Closing and the
consummation of the transactions contemplated by this Agreement for the period
of three (3) years.
SECTION IV. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
PURCHASER.
Purchaser hereby represents, warrants and covenants to Seller as
follows, and acknowledges and confirms that Seller is relying upon such
representations, warranties and covenants in connection with the execution,
delivery and performance of this Agreement, notwithstanding any investigation
made by Seller or on his behalf:
A. ORGANIZATION OF PURCHASER. Purchaser is a corporation organized and
in existence under the laws of the State of Georgia and has all requisite
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
B. AUTHORIZATIONS AND BINDING EFFECT. This Agreement has been duly and
validly authorized, executed and delivered by Purchaser and constitutes the
legal, valid and binding obligation of Purchaser, enforceable in accordance
with its terms. All other corporate proceedings required by the Articles of
Incorporation or the Bylaws of Purchaser or otherwise for the execution and
delivery of this Agreement, and for the consummation of the transactions
contemplated hereby, have been duly taken.
C. NO VIOLATION. The execution, delivery and performance by the
Purchaser of this Agreement or any agreements required hereby to be executed by
Purchaser, will not (i) constitute a violation of, conflict with or constitute
a default under any term or provision of the Purchaser's Articles of
Incorporation or bylaws, each as amended, (ii) to the best of Purchaser's
knowledge, constitute a violation of any statute, ordinance, judgment, order,
decree, regulation or rule of any court, governmental authority or arbitrator
or any license, permit or franchise applicable or relating to the Center or
(iii) result in the creation of any lien upon the Purchaser's assets pursuant
to the provisions of any of the foregoing.
D. ACCURACY OF INFORMATION. No representations, warranties or
covenants by Purchaser or the members, officers or directors of the Purchaser,
nor any statement, list or certificate furnished or to be furnished to the
Seller pursuant hereto, or in connection with the transactions contemplated
hereby, contains or
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will contain any untrue statement of fact or omits or will omit to state a fact
necessary to make the statements contained therein not misleading in light of
the circumstances under which they were made.
E. CLAIMS AND LEGAL ACTIONS. There is no claim, legal action,
counterclaim, suit, arbitration, governmental investigation or other legal,
administrative or tax proceeding, nor any order, decree or judgment, in
progress, pending, or threatened against or relating to Purchaser or the
business or operations of the Purchaser, nor does Purchaser know or have reason
to be aware of any basis for the same.
F. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
warranties and representations of the Purchaser contained in this Agreement
shall be true and correct as of the Closing with the same force and effect as
if given and made on and as of the date and time of Closing, and such
representations and warranties shall survive the Closing and the consummation
of the transactions contemplated by this Agreement for the period of three (3)
years.
G. NOTICE AS TO CHANGES. Purchaser shall promptly advise Seller in
writing of the occurrence of any events of which Purchaser becomes aware after
the date of this Agreement and prior to Closing relating to any of the matters
which are the subject of the covenants, representations and warranties
contained herein. In the event Purchaser withdraws or abandons the registration
statement for the IPO prior to October 15, 1997, Purchaser shall immediately
notify Seller in writing within five (5) business days of such abandonment or
withdrawal.
SECTION V. CONVEYANCES.
At Closing, the Seller shall deliver to Purchaser certificates
evidencing the Orthodontic Stock, together with executed blank stock powers.
Good and marketable title to the Orthodontic Stock shall be conveyed from
Seller to Purchaser free and clear of all liens, claims, charges, encumbrances,
restrictions, and assessments (including, without limitation, any assessments
payable in installments, all of which installments have not been paid),
pledges, agreements and other rights of third parties.
SECTION VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to perform this Agreement are subject to
the satisfaction of the following conditions, each of which may be waived by
Purchaser:
A. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS. At Closing, Seller shall certify to Purchaser that (i) the
representations and warranties of Seller herein contained are true and correct
as of the Closing Date with the same effect as though made on the Closing Date
(except for changes
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<PAGE> 8
permitted or contemplated by the terms of this Agreement or except to the
extent that such changes expressly relate to an earlier date); and (ii) Seller
has performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by Seller prior to the Closing Date.
B. DELIVERIES. Seller hereby agrees to, and shall, deliver or cause to
be delivered to the Purchaser at the Closing the following, each of which shall
be in form and substance satisfactory to the Purchaser:
1. CERTIFICATES OF ORTHODONTIC STOCK. The certificate(s)
evidencing all of Seller's Orthodontic Stock of the Corporation
together with executed blank stock powers;
2. OTHER INSTRUMENTS. Such other instruments of transfer and
conveyance as may be necessary to vest in the Purchaser good and
marketable title to the Orthodontic Stock to be sold hereunder and as
shall be reasonably requested by Purchaser; and
3. CERTIFICATES. Certificates or affidavits of Seller in form
and substance satisfactory to Purchaser regarding the accuracy of
Seller's representations, warranties and covenants contained herein.
C. NO INJUNCTION OR RESTRAINING ORDER. No injunction, restraining
order or other order of any federal or state court in the United States that
prevents the consummation of the transactions contemplated hereby shall be
pending or shall have been issued and remain in effect.
D. GOVERNMENTAL CONSENTS, APPROVALS AND AUTHORIZATIONS. All consents,
authorizations, orders or approvals of, and filings or registrations with, any
governmental commission, board or other regulatory body that are required for
or in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been obtained
or made.
E. INSPECTION AND SURVEY. Purchaser and/or its agents (including
accountants, lawyers and investment bankers) shall have conducted, completed
and be satisfied with (i) a physical plant inspection of the Facilities and an
inspection of the property, and (ii) an inspection of the Corporation's
business, legal and financial books and records, including any leases for
office space, furniture or equipment. Seller shall make such items available to
Purchaser and/or its agents at reasonable times and in such a manner so as not
to unreasonably disrupt the Corporation's or its Facility's normal business.
F. MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change after the date of the most recent financials in the results of
operations, business, assets, properties, liabilities, financial position or
affairs of the
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Corporation, which in the good faith judgment of the Purchaser has had, or will
have a material adverse effect on the Corporation.
G. PUBLIC OFFERING OR FIRM UNDERWRITING. Purchaser shall have
completed a public offering for the sale of at least $10,000,000 of the stock
of Purchaser.
H. CASUALTY LOSSES.On or prior to the time of Closing, the Facilities
and the Corporation shall not have sustained any loss, whether or not insured,
by reason of physical damage to the Facilities caused by fire, flood, accident,
explosions or other calamity which would adversely affect the carrying on of
its business in the normal and regular course.
I. ACCOUNTING TREATMENT. Purchaser shall have received approval from
its auditors and an indication of no objection from the Securities and Exchange
Commission (the "SEC") as to Purchaser's and the Center's, along with other
orthodontic practices, "roll-up" accounting treatment, on terms acceptable to
Purchaser.
J. EMPLOYMENT AGREEMENTS. Seller and any orthodontist(s) who deliver
patient care at the Facilities on average more than ten (10) days per month
shall enter into five (5) year employment agreements after the consummation of
the transactions contemplated hereby, which contain a non-competition agreement
with respect to Purchaser.
K. CORPORATION TRANSACTIONS. Seller shall file with the appropriate
Secretary of State an amendment to the Corporation's Articles of Incorporation
and shall take such other action as may be necessary to change the
Corporation's status and purpose to that of a general business corporation in
accordance with all applicable laws, rules and regulations. Seller shall form a
new professional entity ("New Entity") under which Seller shall conduct its
orthodontic practice at the Facilities. In addition, the New Entity shall (i)
own any assets of the Corporation which applicable law prohibits Purchaser from
owning, (ii) enter into a twenty (20) year service or consulting agreement with
Purchaser, and (iii) enter into five (5) year employment agreements (as
described in Section 6.10) with Seller and all orthodontists who deliver
patient care at the Facilities on average more than ten (10) days per month, or
who have an equity interest in New Entity.
SECTION VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
The obligations of Seller to perform this Agreement are subject to the
satisfaction of the following conditions, each of which may be waived by
Seller:
A. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS. At Closing, Purchaser shall certify to Seller that (i) the
representations and warranties of the Purchaser herein contained are true and
correct as of the Closing Date with the same effect as though made on the
Closing Date (except for
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<PAGE> 10
changes permitted or contemplated by the terms of this Agreement or except to
the extent that they expressly relate to an earlier date); and (ii) Purchaser
has performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by it prior to the Closing Date.
B. DELIVERY OF THE PURCHASE PRICE. Purchaser shall have delivered to
Seller the Purchase Price, as described in Section 2.01.
C. GOVERNMENTAL CONSENTS, APPROVALS AND AUTHORIZATIONS. All consents,
authorizations, orders or approvals of, and filings or registrations with, any
governmental commission, board or other regulatory body that are required for
or in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been obtained
or made.
D. NO INJUNCTION OR RESTRAINING ORDER. No injunction, restraining
order or other order of any federal or state court in the United States that
prevents the consummation of the transactions contemplated hereby shall be
pending or shall have been issued and remain in effect.
E. INITIAL PUBLIC OFFERING. Purchaser shall have completed the IPO on
or before October 15, 1997.
SECTION VIII. PRORATIONS AND ADJUSTMENTS.
The following items shall be adjusted based on the Closing Date on a
pro rata basis between Seller and Purchaser at the time of the Closing or after
the Closing as agreed upon by Purchaser and Seller:
1. Personal property ad valorem taxes on assets retained by the
Corporation for the 12 month period succeeding the applicable
tax bill due date;
2. Charges for electricity, gas, water and sewer and other
utilities to be based on projections from most recent
invoices or on recent meter readings; and
3. Such other items as may be agreed upon by Seller and
Purchaser.
SECTION IX. FEDERAL SECURITIES LAW.
A. INVESTMENT REPRESENTATION. Seller acknowledges that the shares of
Purchaser Stock to be delivered to the Seller at the Closing pursuant to this
Agreement have not been and will not be registered under the Securities Act of
1933 ("1933 Act") and may not be sold, transferred, pledged or otherwise
disposed of in the absence of an effective registration statement covering the
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<PAGE> 11
shares under the 1933 Act and applicable state securities laws, or unless an
exemption from such registration is available and a legal opinion to that
effect is delivered to and accepted by the Purchaser. The Purchaser Stock to be
acquired by the Seller hereunder is being acquired solely for Sellers' own
account, for investment purposes only and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution.
B. COMPLIANCE WITH LAW. Seller represents and warrants that none of
the shares of Purchaser Stock issued to Seller will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of, except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Purchaser Stock issued
hereunder shall bear the following restrictive legend, as well as any legend
required by the securities or blue sky laws of the state where Purchaser
resides:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY JURISDICTION AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AFTER RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT AN EXEMPTION
FROM REGISTRATION IS AVAILABLE UNDER APPLICABLE SECURITIES LAWS.
C. INVESTMENT RISK. Seller is able to bear the economic risk of an
investment in Purchaser Stock acquired pursuant to this Agreement and can
afford to sustain a total loss of such investment and have such knowledge and
experience in financial and business matters that Seller represents and
warrants that Seller is capable of evaluating the merits and risks of the
proposed investment and therefore have the capacity to protect Seller's
interests in connection with the acquisition of Purchaser Stock. Seller or his
representatives have had an adequate opportunity to ask questions and receive
answers from Purchaser concerning any and all matters relating to Purchaser and
the transaction described herein.
D. ACCREDITED INVESTOR STATUS. Seller represents and warrants that
Seller is an "accredited investor" as defined in Rule 501(a) promulgated under
the 1933
Act.
E. PIGGYBACK REGISTRATION RIGHTS. Purchaser has no obligation to
register the shares of Purchaser Stock that Seller will receive hereunder.
Provided, however, in the event Purchaser, at any time within 24 months after
the Closing, contemplates and undertakes a public offering of its shares of
common stock and the filing of a registration statement with the SEC in
connection therewith,
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Purchaser shall notify the Seller in writing of the proposed offering and of
any material terms and conditions of the offering known to Purchaser. Purchaser
shall use all reasonable efforts to have included in such registration
statement all or any portion of the shares distributed to Seller hereunder,
subject, however, to such terms, conditions and limitations (including but not
limited to the number of shares that Seller may offer to sell in such
registration statement) as any underwriter retained by Purchaser in connection
with such offering may require, and provided that the public offering and sale
of such shares is not restricted by any legend or other condition imposed by
any state securities commissioner. Seller shall take all such action and
execute all such documents including, but not limited to, the execution and
delivery of an underwriting agreement in form and substance in all material
respects the same as the underwriting agreement to be signed by Purchaser, as
may be requested by Purchaser. The cost of such public offering shall be borne
by Purchaser, except that Seller shall pay its proportionate share of
underwriters' commissions and discounts and the costs and fees of any
attorneys, accountants and other persons retained by Seller in connection with
the offering. The provisions of this Section 9.5 shall not apply to
registration statements filed in connection with employee stock purchase and
option programs by Purchaser or in connection with actual or proposed
acquisitions by Purchaser. Seller shall notify Purchaser of its election to
exercise its rights herein specified in writing within thirty (30) days after
the aforesaid written notice to the Seller by Purchaser.
SECTION X. TERMINATION.
A. RIGHT OF TERMINATION. This Agreement and the transactions
contemplated by this Agreement may be terminated at any time prior to the
Closing Date:
1. By the mutual consent of the Purchaser and the Seller.
2. By the Purchaser in the event that the conditions set
forth in Sections 3 and 6 of this Agreement shall not have been
satisfied or waived by the Closing.
3. By the Seller in the event that the conditions set forth
in Sections 4 and 7 of this Agreement shall not have been satisfied or
waived by the Closing.
4. By either party upon written notice after October 15,
1997.
5. By the Seller upon receipt of the Purchaser's notice of
withdrawal or abandonment of the registration statement for the IPO by
October 15, 1997 referred to in Section 4.7 hereof.
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<PAGE> 13
B. NOTICE OF TERMINATION. Notice of termination of this
Agreement shall be given by the party so terminating to the other
parties hereto, in accordance with the provisions of Section 12 of
this Agreement.
C. EFFECT OF TERMINATION. In the event that this Agreement is
terminated pursuant to this Section 10, this Agreement shall be void
and have no further force and effect, without any liability on the
part of any of the parties hereto (or their respective members,
stockholders, directors or officers, if any).
SECTION XI. DESCRIPTIVE HEADINGS.
The descriptive headings of this Agreement are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
SECTION XII. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given if (a) delivered by hand, (b) mailed by registered or
certified mail (return receipt requested), (c) telecopied and immediately
confirmed, or (d) sent by overnight delivery, to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which so hand-delivered or so
telecopied, on the third business day following the date on which so mailed, if
deposited in a regularly-maintained receptacle for United States mail, or on
the first business day following the date on which sent by overnight delivery:
If to Purchaser:
US Orthodontic Care, Inc.
3294 Medlock Bridge Road
Norcross, Georgia 30092
Attn: P. Craig Hethcox, CEO
Telecopier: (770) 446-5511
Telephone: (770) 448-8882
With a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street
Atlanta, Georgia 30309
Attn: Paul A. QuirOs, Esq.
Telecopier: (404) 817-6050
Telephone: (404) 817-6103
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If to Seller:
Telecopier: ______________________
Telephone: _______________________
SECTION XIII. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
SECTION XIV. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of __________________ without regard for
its principles of conflicts of laws.
SECTION XV. ASSIGNABILITY.
This Agreement shall not be assignable by the Seller without the prior
written consent of the Purchaser. This Agreement shall be assignable by
Purchaser to (i) any person, firm or corporation that controls or is under
common control with Purchaser, (ii) Premier or any person, firm or corporation
that controls or is under common control with Premier, or (iii) any entity that
results from a merger or other combination between Purchaser and Premier
("Newco") and any person, firm or corporation that controls or is under common
control with Newco.
SECTION XVI. WAIVERS AND AMENDMENTS.
Any term or provision of this Agreement may be waived at any time by
the party that is entitled to the benefits thereof, and any term or provision
of this Agreement may be amended or supplemented at any time by the mutual
consent of Purchaser and Seller, except that any waiver of any term or
condition, or any amendment or supplementation, of this Agreement must be in
writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive a
party's rights hereunder at any time to enforce strict compliance thereafter
with every term or condition of this Agreement.
SECTION XVII. THIRD PARTY RIGHTS.
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Notwithstanding any other provision of this Agreement, this Agreement
shall not create any rights or benefits on behalf of any employee of Seller or
the Corporation, third party or other person, and this Agreement shall be
effective only as between the parties hereto, their successors and permitted
assigns.
SECTION XVIII. ENTIRE AGREEMENT.
This Agreement (including the Exhibits, agreements, documents and
instruments referred to herein) constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them with respect to the subject matter
hereof.
SECTION XIX. SEVERABILITY.
In the event that any one or more of the provisions contained in this
Agreement shall be declared invalid, void or unenforceable, the remainder of
the provisions of this Agreement shall remain in full force and effect.
SECTION XX. EXHIBITS.
The parties shall have until Closing to agree upon all information to
be filed as a part of the Exhibits to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first set forth above.
SELLER:
By:
--------------------------------------
Name:
---------------------------------
PURCHASER:
US ORTHODONTIC CARE, INC.
By:
---------------------------------------
Name:
Title:
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SCHEDULE 2.4
OrthAlliance has succeeded to the rights to agreements substantially
identical to Exhibit 2.4 as follows:
1. Stock Purchase and Sale Agreement with Keith S. Crawford, D.M.D.
2. Stock Purchase and Sale Agreement with Suellen Rodeffer, D.D.S.,
and David Tod Garner, D.D.S.
3. Stock Purchase and Sale Agreement with Donald R. Halliburton,
D.D.S.
4. Stock Purchase and Sale Agreement with John E. Horvath, D.D.S.
5. Stock Purchase and Sale Agreement with Robert P. Lorentz, D.D.S.,
M.S.
6. Stock Purchase and Sale Agreement with George T. Mitchell, D.D.S.
7. Stock Purchase and Sale Agreement with Ben B. Pence, D.M.D.
8. Stock Purchase and Sale Agreement with Robert N. Pickron, D.D.S.
and Greg A. Shoup, D.D.S.
9. Stock Purchase and Sale Agreement with Richard L. Rothstein, D.M.D.
10. Stock Purchase and Sale Agreement with Randall A. Schmidt, D.D.S.,
and Thomas Surber, D.D.S.
11. Stock Purchase and Sale Agreement with Arthur B. Silver, D.D.S.
12. Stock Purchase and Sale Agreement with Gerald N. Smernoff, D.D.S.
13. Stock Purchase and Sale Agreement with Mark A. Yaffey, D.D.S.
14. Stock Purchase and Sale Agreement with Paul Yurfest, D.D.S.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF ORTHALLIANCE, INC.
OrthAlliance, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "DGCL"), does
hereby certify as follows:
1. The present name of the Corporation is OrthAlliance, Inc. The
Corporation was originally incorporated under the name "Premier
Orthodontic Group, Inc." and its original certificate of incorporation
was filed with the office of the Secretary of State of the State of
Delaware on October 21, 1996.
2. This Amended and Restated Certificate of Incorporation (the "Amended
Certificate") was duly adopted by the Board of Directors of the
Corporation (the "Board") and by the sole stockholder of the
Corporation in accordance with Sections 228, 242, and 245 of the DGCL.
3. This Amended Certificate restates and amends the certificate of
incorporation of the Corporation, as heretofore amended, supplemented
and/or restated (the "Existing Certificate").
4. This Amended Certificate shall become effective at 8:00 A.M.
(Wilmington, Delaware time) on the 12th day of August, 1997 (the
"Effective Time") pursuant to Section 103(d) of the DGCL.
5. At the Effective Time, each share of the Corporation's common stock,
$.001 par value per share, issued and outstanding immediately prior to
the Effective Time (the "Old Common Stock") shall be reclassified as
and changed into one validly issued, fully paid, and non-assessable
share of Class A Common Stock authorized by subparagraph (a) of Article
4 of the Amended Certificate, without any action by the holder thereof.
Each certificate that theretofore represented a share or shares of Old
Common Stock shall thereafter represent that number of shares of Class
A Common Stock into which the share or shares of Old Common Stock
represented by such certificate shall have been reclassified.
6. The text of the Existing Certificate is amended and restated in its
entirety as set forth on Exhibit A attached hereto.
IN WITNESS WHEREOF, the Corporation has caused this Amended Certificate
to be duly executed this 11th day of August, 1997.
ORTHALLIANCE, INC.
By: /s/ Paul Hayase
----------------------------------
Paul Hayase, Senior Vice President
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ORTHALLIANCE, INC.
1. The name of the Corporation is:
OrthAlliance, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. (a) The Corporation is authorized to issue 90,250,000 shares of
capital stock, of which 70,000,000 shares shall be shares of Class A Common
Stock, $0.001 par value ("Class A Common Stock,"), 250,000 shares shall be
shares of Class B Common Stock, $0.001 par value ("Class B Common Stock" and,
together with the Class A Common Stock, the "Common Stock"), and 20,000,000
shares shall be shares of Preferred Stock, $0.001 par value ("Preferred Stock").
(b) Common Stock. The powers, preferences and rights, and the
qualifications, limitations and restrictions of each class of the Common Stock
are as follows:
(1) (i) At each annual or special meeting of
stockholders, in the case of any written consent of stockholders in lieu of a
meeting and for all other purposes, each holder of record of shares of Class A
Common Stock on the relevant record date shall be entitled to one (1) vote for
each share of Class A Common Stock standing in such person's name on the stock
transfer records of the Corporation, and each holder of record of Class B Common
Stock on the relevant record date shall be entitled to one (1) vote for each
share of Class B Common Stock standing in such person's name on the stock
transfer records of the Corporation. Except as otherwise required by law and
subject to the rights of holders of any series of Preferred Stock of the
Corporation that may be issued from time to time, the holders of shares of Class
A Common Stock and of shares of Class B Common Stock shall vote as a single
class on all matters with respect to which a vote of the stockholders of the
Corporation is required under applicable law, the Certificate of Incorporation
of the Corporation, or the Bylaws of the Corporation (the "Bylaws"), or on which
a vote of stockholders is otherwise duly called for by the Corporation,
including, but not limited to, the election of directors, matters concerning the
sale, lease or exchange of all or substantially all of the property and assets
of the Corporation, mergers or consolidations with another entity or entities,
dissolution of the Corporation and amendments to the Certificate of
Incorporation of the Corporation (the "Certificate").
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(ii) Neither the holders of shares of
Class A Common Stock nor the holders of shares of Class B Common Stock shall
have cumulative voting rights.
(2) Subject to the rights of the holders of
shares of any series of Preferred Stock, and subject to any other provisions of
the Certificate, holders of shares of Class A Common Stock and shares of Class B
Common Stock shall be entitled to receive such dividends and other distributions
in cash, stock or property of the Corporation as may be declared thereon by the
Corporation's Board of Directors from time to time out of assets or funds of the
Corporation legally available therefor. If at any time a dividend or other
distribution in cash, stock or other property is paid on the shares of Class A
Common Stock or shares of Class B Common Stock, a like dividend or other
distribution in cash, stock or other property shall also be paid on shares of
Class B Common Stock or shares of Class A Common Stock, as the case may be, in
an equal amount per share. In the case of any split, subdivision, combination or
reclassification of shares of Class A Common Stock or Class B Common Stock, the
shares of Class B Common Stock or Class A Common Stock, as the case may be,
shall also be split, subdivided, combined or reclassified so that the number of
shares of Class A Common Stock and Class B Common Stock outstanding immediately
following such split, subdivision, combination or reclassification shall bear
the same relationship to each other as did the number of shares of Class A
Common Stock and Class B Common Stock outstanding immediately prior to such
split, subdivision, combination or reclassification.
(3) In the event of any liquidation,
dissolution or winding up (either voluntary or involuntary) of the Corporation,
the holders of shares of Class A Common Stock and the holders of shares of Class
B Common Stock shall be entitled to receive the assets and funds of the
Corporation available for distribution, after payments to creditors and to the
holders of any Preferred Stock of the Corporation that may at the time be
outstanding, in proportion to the number of shares held by them, respectively,
without regard to class.
(4) In the event of any corporate merger,
consolidation, purchase or acquisition of property or stock, or other
reorganization in which any consideration is to be received by the holders of
shares of Class A Common Stock or the holders of shares of Class B Common Stock,
the holders of shares of Class A Common Stock and the holders of shares of Class
B Common Stock shall receive the same consideration on a per share basis.
(5) No holder of shares of Class A Common Stock
or Class B Common Stock shall be entitled to preemptive or subscription rights.
(6) (i) Except as provided in this
subparagraph (b)(6) of this Article 4, no person holding record ownership of
shares of Class B Common Stock may transfer, and the Corporation shall not
register the transfer of, such shares of Class B Common Stock, except to such
holder's spouse, parents, siblings, lineal descendants, a trust for the benefit
of any such person or as determined by will or laws of descent.
(ii) Notwithstanding anything to the
contrary herein, the Corporation shall not register the transfer of any shares
of Class B Common Stock unless the transferee and the transferor of such Class B
Common Stock have furnished such affidavits and
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<PAGE> 4
other proof as the Corporation may reasonably request to establish that such
proposed transferee is a permitted transferee.
(iii) The Corporation shall include on
the certificates for shares of Class B Common Stock a legend referring to the
restrictions on transfer and registration of transfer imposed by this
subparagraph (b)(6) of Article 4.
(iv) The term transfer shall include
any direct or indirect transfer (by sale, assignment, gift, bequest, appointment
or otherwise).
(v) For purposes of this subsection
(b)(6) of Article 4:
a) The relationship of any
person that is derived by or through legal
adoption shall be considered a natural one.
b) Each joint owner of shares
of Class B Common Stock shall be considered
a holder of such shares.
c) A minor for whom shares of
Class B Common Stock are held pursuant to a
Uniform Gifts to Minors Act or similar law
shall be considered a holder of such shares.
(7) With respect to the Class B Common Stock:
(i) There shall be specific prices at which
shares of the Class A Common Stock are traded in the public market on an
exchange or over the counter market that require holders of the Class B Common
Stock to have shares of Class B Common Stock converted into shares of Class A
Common Stock (collectively, the "Conversion Prices"). Each Conversion Price
shall be deemed to have been attained at the end of the trading day on which the
average of the closing prices of the Class A Common Stock over the preceding 20
consecutive trading days equals or exceeds such Conversion Price. The closing
prices will be those reported on the Nasdaq National Market, or by such other
over-the-counter market or exchange, as applicable (the "Trading Market"). The
first Conversion Price shall equal 150% of the price at which shares of the
Class A Common Stock are sold to the public (the gross amount paid by investors
without deduction for underwriters' discounts and commissions) in the initial
public offering of the Class A Common Stock of the Corporation (the "Initial
Public Offering") pursuant to a registration statement filed with the Securities
and Exchange Commission on Form S-1, as amended (the "Registration Statement").
The second Conversion Price shall be 120% of the first Conversion Price. The
third Conversion Price shall be 120% of the second Conversion Price. The fourth
Conversion Price shall be 120% of the third Conversion Price. The fifth
Conversion Price shall be 120% of the fourth Conversion Price. Appropriate
adjustments shall be made to all Conversion Prices to reflect changes in the
capital structure of the Corporation including, but not limited to, stock splits
or stock dividends.
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(ii) Upon the attainment of each of
the Conversion Prices, a number of shares of Class B Common Stock equal to
one-fifth of the total number of shares of Class B Common Stock outstanding on
the day the first Conversion Price is attained (up to 50,000 shares of Class B
Common Stock) shall be converted to shares of Class A Common Stock.
Notwithstanding the foregoing, if one or more of the Conversion Prices is
attained in the manner described in subparagraph (b)(7)(i) of this Article 4 on
or before the 180th day after the first trading day of the Class A Common Stock
on the Trading Market (the "Effective Date"), then such shares of Class B Common
Stock shall not convert to Class A Common Stock until the 181st day after the
Effective Date.
(iii) Upon attaining each Conversion
Price pursuant to subparagraph (b)(7)(i) of this Article 4, a pro rata share of
all Class B Common Stock held by each holder of Class B Common Stock shall be
converted in accord with subparagraph (b)(7)(ii) of this Article 4 into eight
(8) validly issued, fully paid and non-assessable shares of Class A Common Stock
without further action on the part of the holder thereof or the Corporation
(except the cancellation of stock certificate(s) representing the applicable
shares of Class B Common Stock and the issuance of certificate(s) representing
the number of shares of Class A Common Stock into which such shares of Class B
Common Stock are converted).
(iv) Upon the sixth anniversary of the
Effective Date (the "Final Conversion Date"), all shares of Class B Common Stock
not previously converted to Class A Common Stock pursuant to subparagraphs
(b)(7)(i), (ii) or (iii) or (b)(8) of this Article 4 shall automatically convert
into one validly issued, fully paid and non-assessable share of Class A Common
Stock without further action on the part of the holder thereof or the
Corporation (except the cancellation of stock certificate(s) representing the
applicable shares of Class B Common Stock and the issuance of certificate(s)
representing the number of shares of Class A Common Stock into which such shares
of Class B Common Stock are converted).
(8) At any time and from time to time on or
after the 181st day after the Effective Date, each share of Class B Common Stock
shall be convertible, at the option of its record holder, into one validly
issued, fully paid and non-assessable share of Class A Common Stock. At the time
of a voluntary conversion, the record holder of shares of Class B Common Stock
shall deliver to the principal office of the Corporation or any transfer agent
for shares of the Class A Common Stock (i) the certificate or certificates
representing the shares of Class B Common Stock to be converted, duly endorsed
in blank or accompanied by proper instruments of transfer, and (ii) written
notice to the Corporation specifying the number of shares of Class B Common
Stock to be converted into shares of Class A Common Stock and stating the name
or names (with addresses) and denominations in which the certificate or
certificates representing the shares of Class A Common Stock issuable upon such
conversion are to be issued and including instructions for the delivery thereof.
Conversion shall be deemed to have been effected at the time when delivery is
made to the Corporation or to the transfer agent of both such written notice and
the certificate or certificates representing the shares of Class B Common Stock
to be converted or such later time as may be specified in such written notice,
and as of such time each person named in such written notice as the person to
whom a certificate representing shares of Class A Common Stock is to be issued
shall be deemed to be the holder of record of the number of shares of Class A
Common Stock to be evidenced by that certificate. Delivery of such
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<PAGE> 6
certificates and such written notice shall obligate the Corporation to issue
such shares of Class A Common Stock, and thereupon the Corporation or its
transfer agent shall promptly issue and deliver at such stated address to such
record holder of shares of Class A Common Stock a certificate or certificates
representing the number of shares of Class A Common Stock to which such record
holder is entitled by reason of such conversion, and shall cause such shares of
Class A Common Stock to be registered in the name of such record holder.
(9) In the event of the conversion of less than
all of the shares of Class B Common Stock evidenced by a certificate surrendered
to the Corporation in accordance with the procedures of subparagraphs (b)(7) or
(8) of this Article 4, the Corporation shall execute and deliver to or upon the
written order of the holder of such unconverted shares, without charge to such
holder, a new certificate evidencing the number of shares of Class B Common
Stock not converted.
(10) The Corporation hereby reserves and shall
at all times reserve and keep available, out of its authorized and unissued
shares of Class A Common Stock, for the purposes of effecting conversions, such
number of duly authorized shares of Class A Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of Class B
Common Stock. The Corporation covenants that all of the shares of Class A Common
Stock so issuable shall, when so issued, be duly and validly issued, fully paid
and non-assessable, and free from liens and charges. The Corporation shall take
all action as may be necessary to ensure that all such shares of Class A Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirements of any Trading Market upon which the shares of Class A
Common Stock are or may be listed.
(11) Subject to applicable law, the Corporation
shall have the power to issue and sell all or any part of any shares of any
class of stock herein or hereafter authorized to such persons, and for such
consideration, as the Board of Directors of the Corporation shall from time to
time, in its discretion, determine, whether or not greater consideration could
be received upon the issue or sale of the same number of shares of another
class, and as otherwise permitted by law. Subject to the requirements of
applicable law, the Corporation shall have the power to purchase any shares of
any class of stock herein or hereafter authorized from such persons, and for
such consideration, as the Board of Directors of the Corporation shall from time
to time, in its discretion, determine, whether or not less consideration could
be paid upon the purchase of the same number of shares of another class, and as
otherwise permitted by law.
(12) Except as expressly set forth herein, the
rights of the holders of Class A Common Stock and the rights of the holders of
Class B Common Stock shall be in all respects identical.
(c) Preferred Stock. The Board is expressly authorized
to provide for the issuance of all or any shares of the Preferred Stock in one
or more classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors of
the Corporation providing for the issuance
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<PAGE> 7
of such class or series, including, without limitation, the authority to provide
that any such class or series may be (i) subject to redemption at such time or
times and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; or (iv) convertible into, or exchangeable for, shares of any
other class or classes of stock, or of any other series of the same or any other
class or classes of stock, of the Corporation at such price or prices or at such
rates of exchange and with such adjustments; all as may be stated in such
resolution or resolutions.
5. No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided that this Article 5 shall not eliminate or limit
the liability of a director (i) for any breach of his duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the Delaware General Corporation Law ("DGCL"), or (iv) for
any transaction from which the director derives an improper personal benefit. If
the DGCL is amended hereafter to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent then permitted by the
DGCL, as so amended.
Any repeal or modification of the foregoing provisions of this Article
5 by the stockholders of the Corporation shall be prospective only and shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
6. (a) The Corporation shall, to the broadest and maximum extent
permitted by Delaware law, as the same exists from time to time indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
(b) In addition, the Corporation shall, to the broadest and
maximum extent permitted by Delaware law, as the same may exist from time to
time pay to such person any and all expenses (including attorneys' fees)
incurred in defending or settling any such action, suit or proceeding in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer, to repay such amount if
it shall ultimately be determined by a final judgment or other final
adjudication that he is not entitled to be indemnified by the Corporation as
authorized in this Article 6.
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<PAGE> 8
(c) Subparagraphs (a) and (b) to the contrary notwithstanding, the
Corporation shall not indemnify any such person with respect to any of the
following matters: (i) remuneration paid to such person if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law; or (ii) any accounting of profits made
from the purchase or sale by such person of the Corporation's securities within
the meaning of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law; or (iii) actions brought about or contributed to by the
dishonesty of such person, if a final judgment or other final adjudication
adverse to such person establishes that acts of active and deliberate dishonesty
were committed or attempted by such person with actual dishonest purpose and
intent and were material to the adjudication; or (iv) actions based on or
attributable to such person having gained any personal profit or advantage to
which he was not entitled, in the event that a final judgment or other final
adjudication adverse to such person establishes that such person in fact gained
such personal profit or other advantage to which he was not entitled; or (v) any
matter in respect of which a final decision by a court with competent
jurisdiction shall determine that indemnification is unlawful.
(d) The rights to indemnification and to the advancement of expenses
conferred in this Article 6 shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, this Certificate, the
Bylaws, by agreement, vote of stockholders or disinterested directors, or
otherwise.
7. The Corporation shall have perpetual existence.
8. The number of Directors of this Corporation shall be up to nine (9),
with the exact number set as provided in the Bylaws.
9. (a) The directors shall be divided into three classes, designated
Class I, Class II, and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors of the Corporation. The term of the initial Class I directors
shall terminate on the date of the Corporation's 1998 annual meeting of
stockholders; the term of the initial Class II directors shall terminate on the
date of the Corporation's 1999 annual meeting of stockholders; and the term of
the initial Class III directors shall terminate on the date of the Corporation's
2000 annual meeting of stockholders. At each annual meeting of stockholders
beginning in 1998, successors to the class of directors whose term expires at
that annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease in directorships shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and in no case will a decrease in the number
of directors shorten the term of any incumbent director. Directors shall hold
office until the annual meeting for the year in which their terms expire and
until their successors shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Corporation's Board of Directors, however resulting, may be
filled by the affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum. Any director elected to fill a vacancy shall
hold office only until the next annual meeting of stockholders and until their
successors shall be elected and shall qualify.
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<PAGE> 9
(b) Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Certificate or the resolution or resolutions adopted by the
Corporation's Board of Directors pursuant to Article 4 applicable thereto, and
such directors so elected shall not be divided into classes pursuant to this
Article 9 unless expressly provided by such terms.
10. Subject to the rights, if any, of the holders of shares of
Preferred Stock then outstanding, any or all of the directors of the Corporation
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of more than fifty percent (50%) of the
outstanding stock of the Corporation then entitled to vote generally for the
election of directors, considered for purposes of this Article 10 as one class.
11. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
12. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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EXHIBIT 3.2
BYLAWS
OF
ORTHALLIANCE, INC.
Amended and Restated as of August 11, 1997
References in these Bylaws to "Certificate of Incorporation" or
"Certificate" are to the Amended and Restated Articles of Incorporation of
ORTHALLIANCE, INC., a Delaware corporation (the "Corporation"), as amended and
restated from time to time. References in these Bylaws to the "DGCL" means the
Delaware General Corporation Law, as amended or restated from time to time.
ARTICLE I
OFFICES
SECTION 1.1. Registered Office. The registered office of the
Corporation shall be established and maintained in the City of Wilmington,
Delaware.
SECTION 1.2. Other Offices. The Corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. Annual Meetings. An annual meeting of stockholders shall
be held for the purpose of electing directors at such date, time and place,
either within or without the State of Delaware, as the Board of Directors, by
resolution, shall determine from time to time. Any other proper business may be
transacted at the annual meeting.
SECTION 2.2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board, if any, or the President. The business that may be
transacted at any special meeting of the stockholders shall be limited to that
which is stated in the notice of the special meeting given in accordance with
Section 2.3 and 7.6 of these Bylaws (including related or incidental matters
that may be necessary or appropriate to effectuate the proposed business).
Special meetings of stockholders may be held within or without the State of
Delaware.
<PAGE> 2
SECTION 2.3. Notice of Meetings. Written notice, stating the place,
date and time of each annual and special meeting of stockholders shall be given
by the President, any Vice- President, the Secretary or any Assistant Secretary
to each stockholder entitled to vote thereat at his address as it appears on the
records of the Corporation, not less than ten (10) nor more than sixty (60) days
before the date of the meeting. The notice of an annual meeting need not state
the purpose of the meeting, unless otherwise required by these Bylaws. The
notice of any special meeting shall state the purpose for which the meeting is
called.
SECTION 2.4. Quorum. Except as otherwise required by law, the
Certificate, or these Bylaws, the presence, in person or by proxy, of
stockholders holding a majority of the voting power of all outstanding shares of
stock of the Corporation entitled to vote shall constitute a quorum at all
meetings of the stockholders. A quorum, once established, shall not be broken by
the withdrawal of enough votes to leave less than a quorum. In the absence of a
quorum, the chairman of the meeting or a majority in interest of the
stockholders present, in person or by proxy, and entitled to vote thereat, shall
have power to adjourn the meeting from time to time, in the manner provided by
Section 2.5 of these Bylaws, until a quorum shall be present in person or by
proxy. At any such adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting.
SECTION 2.5. Adjournment. Any annual or special meeting of stockholders
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 2.6. Notification Requirements for Nominating Board of
Directors. Advance notice is required for the nomination, other than by or at
the direction of the Board of Directors or any nominating committee thereof, of
candidates for election as directors at annual meetings of the stockholders.
Notice to the Corporation from a stockholder who proposes to nominate a person
at a meeting for election as a director must be given not less than one hundred
twenty (120) nor more than one hundred fifty (150) days prior to the anniversary
of the date notice of the annual meeting of stockholders was given in the
preceding year. All such notices must contain: (i) the name and record address
of the stockholder who intends to make the nomination; (ii) the name, age and
residence address of the nominee; (iii) the principal occupation or employment
of the nominee; (iv) the class, series and number of shares held of record,
beneficially and by proxy, by the stockholder and the nominee as of the record
date of such meeting (if such record date is publicly available) and as of the
date of such notice; and (v) such
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other information relating to the nominee proposed by such stockholder as is
required to be included if the Corporation is then subject to Regulation 14A
under the Securities Exchange Act of 1934 as amended (the "Exchange Act"),
including the written consent of each nominee to be named in the proxy statement
and to serve as a director of the Corporation if so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination of a person not
made in compliance with this Bylaw.
SECTION 2.7. Notification Requirements for All Other Proposed Business.
Advance notice is required for any proposed business to be brought before any
annual or special meeting of stockholders which a stockholder intends to bring
before any such meeting. For notice of business to be conducted at an annual or
special meeting to be timely, such notice must be received by the Corporation,
in the case of an annual meeting, not less than one hundred twenty (120) nor
more than one hundred fifty (150) days prior to the anniversary of the date
notice of the annual meeting of stockholders was given in the preceding year or,
in the case of a special meeting, not less than thirty (30) days prior to the
date of the meeting. All such notices must contain (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class, series and number of
shares of the Corporation's stock which are held of record, beneficially and by
proxy by the stockholder as of the record date of such meeting (if such record
date is publicly available) and as of the date of such notice, (iv) a
description of all arrangements or understandings between the stockholder and
any other person or persons (naming such person or persons) in connection with
the proposing of such business by the stockholder, and (v) any material interest
of the stockholder in such business. The presiding officer of the meeting may
disregard any stockholder proposals not made in compliance with this Bylaw.
Notwithstanding anything contained in this Section 2.7 to the contrary, any
stockholder request that a proposal be included in the Corporation's proxy
statement must also meet all of the requirements of Section 14 of the Exchange
Act and Regulation 14A promulgated thereunder.
Section 2.8. Voting; Proxies. Except as otherwise provided by the
Certificate, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by him which has
voting power upon the matter in question. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering a proxy in accordance with applicable law bearing a later
date to the Secretary of the
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Corporation. Voting at annual and special meetings of stockholders shall be by
written ballot and, unless otherwise required by law, shall be conducted by
inspectors of election. At all meetings of stockholders at which directors are
to be elected, a plurality of the votes cast shall be sufficient to elect any
director. All other elections and questions shall, unless otherwise provided by
law, the Certificate or these Bylaws, be decided by the vote of the holders of
shares of stock having a majority of the votes which could be cast by the
holders of all shares of stock outstanding and entitled to vote thereon.
SECTION 2.9. Organization and Order of Business. All meetings of
stockholders shall be presided over by the Chairman of the Board, if any, or in
such person's absence, by the Vice Chairman of the Board, if any, or in such
person's absence, by the President, or in such person's absence, by a Vice
President, or in the absence of any of the foregoing persons by a chairman
designated by the Board of Directors. The Secretary or, in such person's
absence, an Assistant Secretary, shall act as secretary of the meeting. In case
none of the officers above designated to act as secretary of the meeting shall
be present, the chairman of the meeting may appoint any person to act as
secretary.
SECTION 2.10. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate, any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing and who,
if the action had been taken at a meeting, would have been entitled to notice of
the meeting if the record date for such meeting had been the date that written
consents signed by a sufficient number of stockholders to take the action were
delivered to the Corporation.
SECTION 2.11. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
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SECTION 2.12. Stock Ledger. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 2.11 of these Bylaws, or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 2.13. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors and which record
date: (1) in the case of a determination of stockholders entitled to vote at any
meeting of stockholders or adjournment thereof, shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting; (2) in the
case of a determination of stockholders entitled to express consent to corporate
action in writing without a meeting, shall not be more than ten (10) days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors; and (3) in the case of any other action, shall not be more
than sixty (60) days prior to such other action. If no record date is fixed: (1)
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action of
the Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 2.14. Inspectors of Election. The Corporation shall, in advance
of any meeting of stockholders, appoint one or more inspectors of elections to
act at the meeting and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Unless otherwise required by law, inspectors may be
officers, employees or
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agents of the Corporation. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability. The
inspector shall take charge of the polls and, when the vote is completed, shall
make a certificate of the result of the vote taken and of such other facts as
may be required by law.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. Number; Classification. The Board of Directors shall
consist of up to nine (9) directors, the exact number to be determined by
resolution of the Board of Directors from time to time. Directors need not be
stockholders. The directors shall be divided into three classes, designated
Class I, Class II, and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors. The term of the initial Class I directors shall terminate on
the date of the 1998 annual meeting of stockholders; the term of the initial
Class II directors shall terminate on the date of the 1999 annual meeting of
stockholders; and the term of the initial Class III directors shall terminate on
the date of the 2000 annual meeting of stockholders. At each annual meeting of
stockholders beginning in 1998, successors to the class of directors whose term
expires at such annual meeting shall be elected for a three-year term, so that
the term of office of one class of directors shall expire in each year. If the
number of directors is changed, any increase or decrease in directorships shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and in no case will a decrease in the
number of directors shorten the term of any incumbent director. Directors shall
hold office until the annual meeting for the year in which their terms expire
and until their successors shall be elected and shall qualify; subject, however,
to death, resignation, retirement, disqualification or removal from office.
SECTION 3.2. Resignations; Removal. Any director may resign at any
time. Such resignation shall be made in writing, and shall take effect at the
time specified therein, and if no time be specified, at the time delivered to
the Corporation. The acceptance of a resignation shall not be necessary to make
it effective. Directors may be removed only for cause, by the vote of the
holders of a majority of the shares entitled to vote at an election of
directors.
SECTION 3.3. Vacancies. Any vacancy on the Board of Directors, however
resulting, may be filled by the affirmative vote of a majority of the remaining
directors then in office, even if less than a quorum, or by a plurality of the
votes cast at a meeting of the directors, and any director so elected shall hold
office only until the next annual meeting of stockholders and until his or her
successor is elected and qualified. Any vacancy resulting from the death,
resignation,
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removal or disqualification of a director elected by the holders of any class or
classes of the stock of the Corporation voting as a class, or from an increase
in the number of directors which such holders are entitled to elect, may be
filled by the affirmative vote of a majority of the directors elected by such
class or classes, or by a sole remaining director so elected, and each director
so chosen shall hold office until his successor is duly elected and qualified or
until his death, or until his earlier resignation, removal or disqualification.
SECTION 3.4. Powers. The business of the Corporation shall be managed
by or under the direction of the Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate or by these Bylaws required to be exercised or
done by the stockholders.
SECTION 3.5. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he, she or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
or in these Bylaws, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation. Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner of the Board of Directors conducts its
business pursuant to these Bylaws.
SECTION 3.6. Organization. Each meeting of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or in such person's
absence, by any Vice Chairman of the Board, if any, or in such person's absence
by the President, or in their absence by a chairman chosen at the meeting. The
Secretary of the Corporation shall act as secretary at each meeting of the Board
of Directors. In case the Secretary shall be absent from any meeting of the
Board of Directors, an Assistant Secretary, if any, shall perform the duties of
Secretary at such meeting, and in the absence from any such meeting of the
Secretary and all the Assistant Secretaries, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
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SECTION 3.7. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such times
and at such places as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice.
SECTION 3.8. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or a majority of directors
then in office. Notice thereof stating the place, date and hour of the meeting
shall be given to each director either by mail not less than two days hours
before the date of the meeting; or by courier delivery, telephone, telecopy or
telegram or similar electronic means not less than twenty-four (24) hours before
the date of such meeting.
SECTION 3.9. Annual Meeting. The Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction of
other business, on the date and at the place of each annual meeting of
stockholders immediately following such meeting, and no notice of such meeting
to the existing or newly elected directors shall be necessary in order to
legally constitute the meeting, provided a quorum is present. Such annual
meeting may be held at any other date, time or place specified in a notice given
as provided for special meetings of the Board of Directors.
SECTION 3.10. Quorum and Manner of Acting. Except as otherwise required
by law, the Certificate or these Bylaws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
SECTION 3.11. Telephonic Meetings. Unless otherwise required by law,
the Certificate or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
SECTION 3.12. Compensation. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
fee, or such other emoluments, as the Board
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of Directors shall from time to time determine. No such payment shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor. Each director who shall serve as a member or chairman of
special or standing committee may be allowed like compensation for attending
committee meetings.
SECTION 3.13. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers, are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
SECTION 3.14. Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the Board, or of such committee as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
ARTICLE IV
OFFICERS
SECTION 4.1. Officers. The officers of the Corporation shall be a
President, a Chief Financial Officer, and a Secretary, all of whom shall be
elected by the Board of Directors. In addition, the Board of Directors may elect
a Chief Executive Officer, one or more Vice- Presidents, a Treasurer, such
Assistant Secretaries and Assistant Treasurers as they may deem proper, a Chief
Operating Officer, a Chief Investment Officer, a General Counsel and a Director
of Development. The Board of Directors may designate one or more Vice Presidents
as Senior
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Executive Vice Presidents, Executive Vice Presidents or Senior Vice Presidents,
and may use such other descriptive words as it may determine to designate the
seniority or areas of special competence or responsibility of the officers.
SECTION 4.2. Chairman and Vice Chairman of the Board. The directors may
elect one of their members to be chairman of the Board of Directors (the
"Chairman of the Board"). The Chairman shall preside at all meetings of the
Board of Directors and shall have and perform such other duties as from time to
time may be assigned to him or her by the Board of Directors. The directors may
elect one of their members to be vice chairman of the Board of Directors (the
"Vice Chairman of the Board"). The Vice Chairman of the Board shall, in the
absence of the Chairman of the Board, preside at all meetings of the Board of
Directors and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
SECTION 4.3. Other Officers. The Board of Directors may appoint such
other officers and agents as it may deem advisable, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors.
SECTION 4.4. Term of Office and Qualifications. Each officer shall hold
office until such officer's successor shall have been duly chosen and shall
qualify, or until such officer's death, resignation or removal. The Chairman of
the Board or any Vice Chairman of the Board shall be chosen from among the
directors, but no other officer need be a director. Any two or more offices may
be held by the same person. Each officer shall exercise such powers and perform
such functions or duties as are provided in these Bylaws, or as the Board of
Directors may from time to time determine by resolution.
SECTION 4.5. Removal and Resignation. Any officer may be removed,
either with or without cause, by the Board of Directors, and any officer may
also be removed in such other manner as may be specified by the Board of
Directors in the resolution or resolutions electing such officer. Any officer
may resign at any time by giving written notice to the Board of Directors, the
Chairman of the Board, if any, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time therein
specified or if no time is specified, immediately; and, unless otherwise
specified in such notice, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4.6. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled by
resolution of the Board of Directors.
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SECTION 4.7. Compensation. Salaries or other compensation of the
officers may be fixed from time to time by the Board of Directors or any duly
authorized committee of directors and shall be so fixed by the Board of
Directors or such committee as to any officers serving the Corporation as a
director. No officer shall be prevented from receiving proper compensation for
such officer's services by reason of the fact that such officer is also a
director of the Corporation.
SECTION 4.8. President. The President shall have the general powers
and duties of supervision and management usually vested in the office of
President of a corporation and shall be charged with the general and active
management of the business of the Corporation, shall see that all orders and
resolutions of the Board of Directors are carried into effect, shall have the
authority to select and appoint employees and agents of the Corporation, and
shall, in the absence or disability of the Chairman of the Board, and any Vice
Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board. The President shall perform any other duties and have any
other authority as may be delegated from time to time by the Board of Directors,
and shall be subject to the limitations fixed from time to time by the Board of
Directors. Unless a Chief Executive Officer is otherwise elected, the President
shall be the Chief Executive Officer.
SECTION 4.9. Vice Presidents. The Vice President (if there shall be
one) shall, in the absence or disability of the President, or at the direction
of the President, perform the duties and exercise the powers of the President,
whether the duties and powers are specified in these Bylaws or otherwise. If the
Corporation has more than one Vice President, then the one designated by the
Board of Directors or the President (in that order of precedence) shall act in
the event of the absence or disability of the President. Vice Presidents shall
perform any other duties and have any other authority as from time to time may
be delegated by the Board of Directors or the President.
SECTION 4.10. Chief Financial Officer. The Chief Financial Officer
shall have the custody of the corporate funds and securities and shall keep full
and accurate account of receipts and disbursements in books belonging to the
Corporation. The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation in such depositories
as may be designated by the Board of Directors. The Chief Financial Officer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, or the President. The Chief Financial Officer shall render to the
President and Board of Directors at the regular meetings of the Board of
Directors, or whenever they may request it, an account of all his or her
transactions as Chief Financial Officer and of the financial condition of the
Corporation. The Chief Financial Officer shall exercise such other powers and
perform such other duties as shall be determined from time to time by the Board
of Directors.
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SECTION 4.11. Secretary. The Secretary shall be responsible for
preparing minutes of the meetings of stockholders, directors, and committees of
directors and for authenticating records of the Corporation. The Secretary or
any Assistant Secretary shall have authority to give all notices required by
law, the Certificate or these Bylaws. The Secretary shall be responsible for the
custody of the corporate books, records, contracts and other documents. The
Secretary or Assistant Secretary may affix the corporate seal to any lawfully
executed documents requiring it, may attest to the signature of any officer of
the Corporation, and shall sign any instrument that requires the Secretary's
signature. The Secretary shall exercise such other powers and perform such other
duties as shall be determined from time to time by the Board of Directors.
SECTION 4.12. Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
STOCK
SECTION 5.1. Form of Certificates. (a) Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation by (i) the Chairman of the Board, the President or one of the Vice
Presidents, and (ii) the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer of the Corporation, certifying the number of shares
owned by him in the Corporation.
(b) If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise required by Section 202 of the DGCL, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
SECTION 5.2. Signatures. Any or all signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar
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before such certificate is issued, unless otherwise ordered by the Board of
Directors, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
SECTION 5.3. Lost, Destroyed, Stolen or Mutilated Certificates. The
Corporation may issue a new certificate of stock in the place of any certificate
theretofore issued by the Corporation, alleged to have been lost, stolen or
destroyed, upon the making of an affidavit or such other proof satisfactory to
the Corporation of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. The Corporation may require, as a condition
precedent to the issuance thereof, that the owner of such lost, stolen or
destroyed certificate, or his legal representative, give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation and its transfer agents and registrars with respect to
the certificate alleged to have been lost, stolen or destroyed or the issuance
of such new certificate.
SECTION 5.4. Transfers. Except as otherwise prescribed by law or the
Certificate, stock of the Corporation shall be transferable in the manner
prescribed in these Bylaws. Transfers of stock shall be made on the books of the
Corporation only by the person named in the certificate or by such person's duly
authorized attorney appointed by a power of attorney duly executed and filed
with the transfer agent of the Corporation, and upon surrender of the
certificate or certificates for such stock properly endorsed for transfer and
payment of all necessary transfer taxes. Every certificate exchanged, returned
or surrendered to the Corporation shall be marked "Canceled" with the date of
cancellation by the Secretary or an Assistant Secretary of the Corporation or by
the transfer agent thereof. No transfer of stock shall be valid as against the
Corporation, its stockholders or its creditors for any purpose until it shall
have been entered in the stock records of the Corporation by an entry showing
from and to whom transferred.
SECTION 5.5. Limitations on Transfer. A written restriction on the
transfer or registration of transfer of a security of the Corporation, if
permitted by Section 202 of the DGCL and noted conspicuously on the certificate
representing the security, may be enforced against the holder of the restricted
security or any successor or transferee of the holder including an executor,
administrator, trustee, guardian or other fiduciary entrusted with like
responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing the security, a restriction, even
though permitted by Section 202 of the DGCL, is ineffective except against a
person with actual knowledge of the restriction. A restriction on the transfer
or registration of transfer of securities of the Corporation may be imposed
either by the Certificate or by these Bylaws or by an agreement among any number
of security holders or among such holders and the Corporation. No restriction so
imposed shall be binding with respect to securities issued prior to the adoption
of the restriction unless the holders of the securities are parties to an
agreement or voted in favor of the restriction.
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SECTION 5.6. Transfer and Registry Agents. The Corporation may from
time to time maintain one or more transfer offices or agencies and registry
offices or agencies at such place or places as may be determined from time to
time by the Board of Directors.
SECTION 5.7. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
SECTION 5.8. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate, if any, may be
declared by the Board of Directors and may be paid in cash, in property, or in
shares of the Corporation's capital stock. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or for
purchasing any of the shares of capital stock, warrants, rights, options, bonds,
debentures, notes, scrip or other securities or evidences of indebtedness of the
Corporation, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 6.1. Right to Indemnification in Proceedings Other Than Those
by or in the Right of the Corporation. Subject to Section 6.4 of this Article
VI, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director or officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other entity or
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding
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by judgment, order, settlement, conviction, or upon a plea of nolo contenders or
its equivalent, shall not, of itself, create a presumption that such person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
SECTION 6.2. Right to Indemnification in Proceedings by or in the Right
of the Corporation. Subject to Section 6.4 of this Article VI, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or enterprise,
against expenses (including attorneys, fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 6.3. Right to Advancement of Expenses. In addition to the right
to indemnification conferred in Sections 6.1 and 6.2, expenses (including
attorneys, fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that such
person is not entitled to be indemnified by the Corporation as authorized in
this Article VI. The Corporation shall not be required to advance any expenses
to a person against whom the Corporation brings an action, alleging that such
person committed an act or omission not in good faith or that involved
intentional misconduct or a knowing violation of law, or that was contrary to
the best interest of the Corporation, or derived an improper personal benefit
from a transaction. In any suit brought by (i) any person to enforce a right to
indemnification under Section 6.1 or 6.2 or a right to advancement of expenses
under Section 6.3 or (ii) by the Corporation to recover an advancement of
expenses pursuant to an undertaking, the burden of proving that any such person
is not entitled to indemnification or advancement of expenses shall be on the
Corporation.
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SECTION 6.4. Authorization of Indemnification. Any indemnification
under this Article VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 6.1 or Section 6.2, and in each case Section 6.12, of this Article VI,
as the case may be. Such determination shall be made (i) by a majority vote of
the directors who were not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (iii)
by the stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys, fees) actually and reasonably incurred by such person in connection
therewith, without the necessity of authorization in the specific case.
SECTION 6.5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 6.4 of this Article VI, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
6.1 and 6.2, and in each case Section 6.12, of this Article VI. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standards of conduct set forth in
Sections 6.1 or 6.2, and in each case Section 6.12, of this Article VI, as the
case may be. Neither a contrary determination in the specific case under Section
6.4 of this Article VI nor the absence of any determination thereunder shall be
a defense to such application or create a presumption that the director or
officer seeking indemnification has not met any applicable standard of conduct.
Notice of any application for indemnification pursuant to this Section 6.5 shall
be given to the Corporation promptly upon the filing of such application. If
successful, in whole or in part, the director or officer seeking indemnification
shall also be entitled to be paid the expense of prosecuting such application.
SECTION 6.6. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity or enterprise against any liability asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power or
the obligation to indemnify such person against such liability under the
provisions of this Article VI or the DGCL.
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SECTION 6.7. Non-Exclusivity of Rights. The indemnification and
advancement of expenses provided by or granted pursuant to this Article VI shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, contract, vote of stockholders or disinterested directors or pursuant
to the direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 6.1 and
6.2 of this Article VI shall be made to the fullest extent permitted by law. The
provisions of this Article VI shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 6.1 or 6.2 of
this Article VI but whom the Corporation has the power or obligation to
indemnify under the provisions of the DGCL, or otherwise.
SECTION 6.8. Indemnification Agreements. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VI.
SECTION 6.9. Certain Definitions. For purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or enterprise, shall
stand in the same position under the provisions of this Article VI with respect
to the resulting or surviving corporation as such person would have with respect
to such constituent corporation if its separate existence had continued. For
purposes of this Article VI, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VI.
- 17 -
<PAGE> 18
SECTION 6.10. Effect of Amendment. Any amendment, repeal or
modification of any provision of this Article VI by the stockholders or the
directors of the Corporation shall not adversely affect any right or protection
of a director or officer of the Corporation existing at the time of such
amendment, repeal or modification.
SECTION 6.11. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 6.12. Limitation on Indemnification. Notwithstanding anything
contained in this Article VI to the contrary, except for proceedings to enforce
rights to indemnification (which shall be governed by Section 6.5 hereof), the
Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Corporate Seal. The corporate seal shall be circular in
form and shall contain the name of the Corporation, the year of its creation and
the words "CORPORATE SEAL" and "DELAWARE". Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7.2. Fiscal Year. The fiscal year of the Corporation shall
begin on the 1st day of January in each year and terminate on the 31st day of
each December, or as shall otherwise be determined from time to time by the
Board of Directors.
SECTION 7.3. Checks. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, agent or agents of
the Corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 7.4. Execution of Contracts. Except as otherwise required by
these Bylaws, the Board of Directors, any duly authorized committee of directors
or the President may authorize any officer other than or in addition to the
officers authorized by Article IV of these Bylaws, including any employee or
agent or agents, in the name and on behalf of the Corporation, to enter
- 18 -
<PAGE> 19
into and execute any deed, mortgage, bond, guarantee, contract or other
instrument, and any such authority may be general or may be confined to specific
instances or otherwise limited.
SECTION 7.5. Loans and Loan Guarantees. Any officer, employee or agent
of the Corporation thereunder authorized by the Board of Directors, by any duly
authorized committee of directors or by the President may effect in the name and
on behalf of the Corporation, loans or advances from, or guarantees of loans or
advances to, any bank, trust company or other institution or any firm,
corporation or individual, and for such loans and advances or guarantees may
make, execute and deliver promissory notes, bonds or other certificates or
evidences of indebtedness or guarantees of the Corporation, and may pledge or
hypothecate or transfer any securities or other property of the Corporation as
security for any such loans, advances or guarantees. Such authority conferred by
the Board of Directors, any duly authorized committee of directors or the
President may be general or may be confined to specific instances or otherwise
limited.
Section 7.6. Notice. Whenever these Bylaws require notice to be given
to any stockholder or to any director, the notice may be given by mail, in
person, by courier delivery, by telephone, or by telecopier, telegraph, or
similar electronic means. Whenever notice is given to a stockholder or director
by mail, the notice shall be sent by depositing the notice in a post office or
letter box in a postage-prepaid, sealed envelope addressed to the stockholder or
director at his or her address as it appears on the books of the Corporation.
Any such written notice given by mail shall be effective: (i) if given to
stockholders, at the time the same is deposited in the United States mail; and
(ii) in all other cases, at the earliest of (x) when received or when delivered,
properly addressed, to the addressees last known principal place of business or
residence, (y) three days after its deposit in the mail, as evidenced by the
postmark, if mailed with first-class postage prepaid and correctly addressed, or
(z) on the date shown on the return receipt, if sent by registered or certified
mail, return receipt requested, and the receipt is signed by or on behalf of the
addressee. Whenever notice is given to a stockholder or director by any means
other than mail, the notice shall be deemed given when received. In calculating
time periods for notice, when a period of time measured in days, weeks, months,
years, or other measurement of time is prescribed for the exercise of any
privilege or the discharge of any duty, the first day shall not be counted but
the last day shall be counted.
SECTION 7.7. Stock of Other Corporations or Other Interests. Unless
otherwise ordered by the Board of Directors, the President, the Secretary, and
such attorneys or agents of the Corporation as may from time to time be
authorized by the Board of Directors or the President, shall have full power and
authority on behalf of this Corporation to attend and to act and vote in person
or by proxy at any meeting of the holders of securities of any corporation or
other entity in which this Corporation may own or hold shares or other
securities, and at such meetings shall possess and may exercise all the rights
and power incident to the ownership of such shares
- 19 -
<PAGE> 20
or other securities which this Corporation, as the owner or holder thereof,
might have possessed and exercised if present. The President, the Secretary, or
such attorneys or agents, may also execute and deliver on behalf of the
Corporation powers of attorney, proxies, consents, waivers, and other
instruments relating to the shares or securities owned or held by this
Corporation.
ARTICLE VIII
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, amend, or repeal the Bylaws of the
Corporation by vote of not less than two-thirds of the voting power of such
shares, and except as otherwise provided by law, the Board of Directors shall
have power equal in all respects to that of the stockholders to adopt, amend, or
repeal the Bylaws by vote of not less than a majority of the Board of Directors;
provided, however, any Bylaws adopted by the Board of Directors may be amended
or repealed by vote of the holders of the voting power of two-thirds of the
shares entitled at the time to vote for the election of directors.
- 20 -
<PAGE> 1
EXHIBIT 4.1
Countersigned and Registered:
NORWEST BANK MINNESOTA, N.A.
Transfer Agent And Registrar
By Authorized Signature
CLASS A COMMON STOCK CLASS A COMMON STOCK
A- ORTHALLIANCE
A NATIONAL ALLIANCE
OF ORTHODONTIC PROFESSIONALS
CUSIP 687913 10 3
SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK,
OF THE PAR VALUE OF ONE-TENTH OF ONE CENT ($.001) PAR VALUE PER SHARE, OF
---------------- -------------------
- --------------------------------ORTHALLIANCE, INC.-----------------------------
---------------- -------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent and Registrar.
WITNESS the facsimile signatures of the Corporation's duly authorized
officers.
Dated:
[SEAL]
ORTHALLIANCE, INC.
CORPORATE
SEAL
OCT. 21
1996
DELAWARE
/s/ Paul H. Hayase /s/ Sam Westover
Secretary President
<PAGE> 2
THE BOARD OF THIS CORPORATION HAS THE AUTHORITY TO CREATE AND DETERMINE THE
RELATIVE RIGHTS AND PREFERENCES OF CLASSES OR SERIES OF SHARES OF CAPITAL STOCK
OTHER THAN COMMON STOCK. THIS CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON
WRITTEN REQUEST SENT TO ITS PRINCIPAL EXECUTIVE OFFICES, AND WITHOUT CHARGE, A
STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UTMA - ______Custodian _____
(Cust) (Minor)
TEN ENT - as tenants by entireties under Uniform Transfet to Minors
JT TEN - as joint tenants with right of survivorship Act_______________________________
and not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
- ---------------------------------------------------------------------------------------------------
</TABLE>
For Value received _______hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
Dated ____________________________________________
____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SIGNATURE GUARANTEED
<PAGE> 1
EXHIBIT 5.1
[NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. LETTERHEAD]
August 22, 1997
OrthAlliance, Inc.
23848 Hawthorne Boulevard
Suite 200
Torrance, California 90505
Ladies and Gentlemen:
We have acted as counsel to OrthAlliance, Inc. (the "Company"), in
connection with the filing of a Registration Statement on Form S-1 (Registration
No. 333-27143), as amended (the "Registration Statement") under the Securities
Act of 1933, as amended, covering the offering of up to 2,500,000 shares of the
Company's Class A Common Stock, $.001 par value per share (the "Shares"). In
connection therewith, we have examined such corporate records, certificates of
public officials and other documents and records as we have considered necessary
or proper for the purpose of this opinion.
This opinion is limited by and is in accordance with, the January 1,
1992, edition of the Interpretive Standards applicable to Legal Opinions to
Third Parties in Corporate Transactions adopted by the Legal Opinion Committee
of the Corporate and Banking Law Section of the State Bar of Georgia.
Based on the foregoing, and having regard to legal considerations which
we deem relevant, we are of the opinion that the Shares, when issued and
delivered as described in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
<PAGE> 1
EXHIBIT 10.1
PREMIER ORTHODONTIC GROUP, INC.
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (this "Agreement"), dated as of
__________________, 1997, by and between PREMIER ORTHODONTIC GROUP, INC., a
Delaware corporation, and its successors and assigns ("Premier"), and
_______________________________, a Florida __________________________ (the
"Orthodontic Entity").
RECITALS:
WHEREAS, the Orthodontic Entity owns and operates an orthodontic
practice with offices located in the facilities identified in Exhibit 1.2 (the
"Center(s)") and furnishes orthodontic and other dental care to the general
public through the services of the orthodontist(s) and dentist(s) affiliated
with the Orthodontic Entity to provide patient care at the Center (the
"Orthodontist(s)"); and
WHEREAS, Premier is a company which has been formed to own the assets
of, provide personnel and practice management to, and manage the business
affairs of orthodontic practices;
WHEREAS, Premier's services are designed to improve the efficiency and
profitability of orthodontic practices while enhancing the ability of the
orthodontists in such practices to render quality orthodontic care to their
patients;
WHEREAS, the Orthodontic Entity and Premier mutually desire to enter
into a business relationship under the terms of this Agreement to help the
Orthodontic Entity achieve the above goals.
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
I. RESPONSIBILITIES AND OBLIGATIONS OF PREMIER
1.1. General. Premier shall provide the Orthodontic Entity with
comprehensive practice management, financial and marketing services, and such
facilities, equipment, and support personnel as reasonably required by the
Orthodontic Entity to operate its practice, as determined by Premier in
consultation with the Orthodontist. The Orthodontic Entity hereby appoints
Premier as the sole and exclusive business manager of the Center and agrees that
Premier shall have all power and authority reasonably necessary to manage the
business affairs of the Center and carry out Premier's duties under this
Agreement, subject to the requirements
<PAGE> 2
of the applicable provisions of Florida law relating to the practice of
dentistry. Notwithstanding anything contained herein to the contrary, the
Orthodontic Entity (or the Orthodontist as appropriate) shall retain control
over all aspects of and decisions directly affecting the course of treatment of
any patients of the Orthodontic Entity.
1.2. Facilities and Equipment. The parties expressly agree that all
office space and facilities provided by Premier to the Orthodontic Entity
hereunder shall be leased or provided to the Orthodontic Entity by Premier at
the rental amount incurred by Premier under a lease or other agreement or
arrangement under which the Orthodontic Entity shall maintain complete care,
custody, and control of the foregoing. Subject to the foregoing, Premier agrees
to provide or arrange for on behalf of the Orthodontic Entity the offices,
facilities, furnishings, equipment, and related services described in Exhibit
1.2 hereto, as such Exhibit may be amended from time to time, and, on an ongoing
basis, shall provide for the maintenance and upkeep of the foregoing as a Center
Expense (as hereinafter defined); provided, however that the Orthodontic Entity
shall maintain complete control over and shall make all decisions directly
affecting the complete care, custody and control over all dental equipment.
Premier additionally agrees, on an ongoing basis, to evaluate and consult with
the Orthodontic Entity on the equipment needs of and the efficiency and adequacy
of the facilities utilized by the Center. Unless the Orthodontic Entity chooses
to directly purchase furnishings, equipment and related assets in the future,
Premier shall purchase such assets and lease such assets to the Orthodontic
Entity under a capital leasing arrangement with such terms as mutually agreed to
by the Orthodontic Entity and Premier. If the Orthodontic Entity chooses to
purchase such assets, then it shall depreciate such assets in accordance with
generally accepted accounting principles ("GAAP") and treat such depreciation as
a Center Expense.
1.3. Personnel and Payroll. Premier shall employ all of the Center's
staff, except the Orthodontists and dental hygienists, as determined by the
Orthodontic Entity in consultation with Premier, to be required for the
operation of the Center. Additionally, Premier shall be responsible for the
performance of all payroll and payroll accounting functions. The Orthodontic
Entity shall be responsible for determining the hours of practice for the
Center.
1.4. Business Systems, Procedures and Forms. In consultation with the
Orthodontic Entity, Premier shall establish business systems and procedures for
the Center developed by Premier that are designed to improve the Center's
operating efficiency. Premier shall provide training to the Center's staff in
the implementation and operation of such business systems and procedures.
Premier shall additionally provide the Orthodontic Entity with and train the
Center's staff in the use of clinical forms, including, without limitation,
forms for patient evaluations and treatment plans. The Orthodontic Entity
expressly acknowledges and agrees that it shall have no property rights in the
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 hereof and subject to the
restrictions on the use, appropriation, and reproduction of such Confidential
Information provided for in Section 2.7.
2
<PAGE> 3
1.5. Purchasing, Accounts Payable and Inventory Control. In
consultation with the Orthodontic Entity, Premier shall purchase and maintain as
a Center Expense all inventory and supplies required by the Center. The price
charged to the Center for such inventory and supplies shall be the same as the
price paid by Premier, including any rebates. In any event, the Orthodontic
Entity has the right to purchase its supplies from the supplier of its choice.
Premier 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 Center.
1.6. Information Systems and Accounting. Premier shall establish,
maintain and train the Center's staff in the use of information systems to
produce financial and operational information concerning the Center's
operations. Premier shall analyze such information on an ongoing basis in order
to advise the Orthodontic Entity on ways of improving operating efficiencies.
Premier shall provide or arrange for all accounting and bookkeeping services
related to the Center's operations, provided that such services are incurred in
the ordinary course of business.
1.7. Legal Compliance and Services. Premier shall be responsible for
ensuring compliance with all rules, regulations and ordinances applicable to the
Center's operations, and shall arrange for all legal services reasonably
required by the Center, but excluding the costs of malpractice litigation which
shall be the sole responsibility of the Orthodontist. Premier shall use
reasonable efforts to obtain under its blanket policies for the Orthodontist as
a Center Expense malpractice insurance that meets the coverage requirements set
forth in Section 4.1 hereof.
1.8. Marketing. The parties expressly acknowledge and agree that the
Orthodontic Entity shall exercise control over all policies and decisions
relating to pricing, credit, refunds, warranties and advertising. Subject to the
foregoing, Premier shall design and execute a marketing plan to promote the
Orthodontist's professional services. In connection with such marketing plan,
Premier shall advise the affiliated Orthodontist on establishing and maintaining
a plan for patients' payment for orthodontic services on an installment plan
basis. All marketing activities hereunder shall be conducted in compliance with
all applicable laws and regulations governing advertising by the dental
profession.
1.9. Planning. Premier will assess and advise the Orthodontic Entity on
the establishment of orthodontic offices in new locations and, subject to mutual
agreement, will provide assistance to the Orthodontic Entity in the opening of
such new offices, including assistance in the location of such offices and in
the sale of existing practices, as appropriate.
1.10. Financial Services. On a continuous basis, the accounts receivable
of the Orthodontic Entity shall be deposited with Premier for the Orthodontic
Entity's account, and Premier shall use the funds collected from such accounts
receivable to pay the Service Fee (as hereinafter set forth) and the expenses of
the Orthodontic Entity, including the Center
3
<PAGE> 4
Expenses and shall return to the Orthodontic Entity any funds remaining after
payment in full of such items. Premier shall be responsible for (i) billing and
collecting payments for all orthodontic services rendered by the Orthodontist to
his patients and for all other professional and Center services, with all such
billing and collecting to be done in the name of the Orthodontic Entity; (ii)
receiving payments from patients, insurance companies and all other third party
payors; (iii) taking possession of and endorsing in the name of the Orthodontic
Entity any notes, checks, money orders, insurance payments and other instruments
received in payment of accounts receivable; (iv) administering the Orthodontic
Entity's payroll as applicable; (v) preparing and submitting to the Orthodontist
monthly operating data and quarterly financial reports with respect to the
operation of the Center; and (vii) paying all Center Expenses, as set forth in
Section 3. No funds from the Medicare or Medicaid programs shall be billed or
collected by the Orthodontic Entity or by Premier on the Orthodontic Entity's
behalf, provided, however, that all such funds collected shall be immediately
deposited into the Orthodontic Entity Account (as hereinafter defined) upon
receipt thereof. The Orthodontic Entity and the Orthodontist hereby appoint
Premier for the term of this Agreement to be their true and lawful
attorney-in-fact for the purposes set forth above in this Section.
1.11. Disbursement of Funds. (a) All monies collected for the
Orthodontic Entity by Premier pursuant to Section 1.10 above shall be deposited
into an account (the "Orthodontic Entity Account") with a bank whose deposits
are insured with the Federal Deposit Insurance Corporation. The Orthodontic
Entity Account shall contain the name of the Orthodontic Entity, but Premier
shall make all disbursements therefrom. Premier shall account for all monies so
disbursed from the Orthodontic Entity Account. From the funds collected and
deposited each month by Premier in the Orthodontic Entity Account, Premier shall
make the following disbursements, among others, promptly when payable:
(i) Compensation payable to all employees of the Orthodontic
Entity, and all taxes and assessments payable to local, state and Federal
governments in connection with the employment of such personnel; and
(ii) All sums otherwise due and payable by the Orthodontic
Entity as Center Expenses, as defined in Article III hereof, as well as
fees payable to Premier pursuant to Article III hereof.
(b) In the event the funds in the Orthodontic Entity Account will, at
any time, be insufficient to cover current expenses, Premier shall notify the
Orthodontic Entity and Premier shall advance to the Orthodontic Entity the
necessary funds to pay current expenses for the benefit of the Orthodontic
Entity, which advances will be deemed to be loans to the Orthodontic Entity to
be repaid upon such terms as agreed to by the Orthodontic Entity and Premier,
which indebtedness shall be deemed a Center Expense for purposes of Article III
hereof; provided, however, that in any event the outstanding principal amount of
such indebtedness shall bear interest at an annual rate adjusted on the first
calendar day of each month to reflect that certain rate from time to time
published by the Wall Street Journal as the
4
<PAGE> 5
prime rate, as of the last business day of the immediately preceding month for
which such prime rate was published (the "Prime Rate"), plus one percent (1%).
1.12. Records. Premier shall supervise, manage, organize and develop
systems with respect to all files and records relating to the operation of the
Center, including but not limited to accounting, billing, patient records, and
collection records. Patient records shall at all times be and remain the
property of the Orthodontist and shall be located at the Orthodontic Entity's
facilities so that they are readily accessible for patient care. The management
of all files and records shall comply with applicable state and federal
statutes. Premier shall use its reasonable efforts to preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purpose necessary to perform the services set forth
herein; provided, however, in no event shall a breach of said confidentiality be
deemed a default under this Agreement.
II. OBLIGATIONS OF THE ORTHODONTIC ENTITY
2.1. Employment of Orthodontists and Rendering of Patient Care. The
Orthodontic Entity shall be responsible for the employment and professional
supervision of all Orthodontist(s) affiliated with the Orthodontic Entity and
all orthodontic care rendered to patients shall be rendered by such
Orthodontist(s). Additionally, the Orthodontist shall be responsible for the
direct professional supervision of all hygienists and technicians in their
rendering of patient care.
2.2. Professional Services. The Orthodontic Entity shall use and occupy
the offices and facilities designated on Exhibit 1.2 exclusively for the
practice of orthodontic and general dentistry services, and shall comply with
all applicable local rules, ordinances and all standards of dental and
orthodontic care. It is expressly acknowledged by the parties that the
orthodontic practice conducted at the Center shall be conducted solely by the
Orthodontists associated with the Orthodontic Entity except those additional
orthodontists employed by the general dentists' offices from which the
Orthodontic Entity rents only space, and no other orthodontist shall be
permitted to use or occupy the Center, except as provided in Exhibit 2.3. The
Orthodontic Entity shall provide professional services to patients hereunder in
compliance at all times with ethical standards, and laws and regulations
applying to the dental profession. The Orthodontic Entity shall ensure that each
Orthodontist providing orthodontic or dental services to patients is licensed by
the state in which the Center is located. In the event that any disciplinary,
medical malpractice or other actions are initiated against any such
Orthodontist, the Orthodontic Entity shall immediately inform Premier of such
action and the underlying facts and circumstances. The Orthodontic Entity agrees
to cooperate with and participate in quality assurance/utilization review
programs established by Premier or mandated by accreditation and/or licensure
standards applicable to the practice of orthodontics and dentistry. Deficiencies
discovered in the performance of any personnel or in the quality of professional
services shall be reported immediately to Premier, and appropriate steps shall
be taken by the Orthodontic Entity at once
5
<PAGE> 6
to remedy such deficiencies. Any termination of an Orthodontist other than for
cause (as such term is defined in the Employment Agreement between the
Orthodontic Entity and the Orthodontist) must be approved by a majority of the
Board of Advisors of Premier.
2.3. Records. The Orthodontic Entity will keep or cause to be kept
accurate, complete and timely medical and other records of all patients. Such
records shall be sufficient to enable Premier, on behalf of the Orthodontic
Entity, to obtain payment for the services provided by the Orthodontist.
2.4. Professional Expenses. Payments expended each fiscal year by the
Orthodontic Entity on behalf of the Orthodontist and other orthodontists or
dentists delivering patient care at the Center(s) for continuing education,
seminars, professional license fees and dues, professional memberships, expenses
related to a company automobile for the Orthodontist, and all other expenses of
the Orthodontist and other orthodontists and dentists delivering patient care at
the Center(s) that do not directly benefit the Orthodontic Entity (as determined
by the auditors for Premier), up to the amount of three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue, shall be considered a Center
Expense. To the extent that such expenses exceed three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue for such year, the Center Expenses
shall be reduced by such excess amount solely for the purpose of calculating the
Service Fee (as defined in the Service Agreement); provided, however, that the
Orthodontic Entity shall pay such excess expenses. Notwithstanding the
foregoing, the Orthodontic Entity 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 the
Orthodontist. The Orthodontic Entity shall ensure that the Orthodontist
participates in such continuing education as is necessary for such Orthodontist
to remain current.
2.5. Professional Insurance Eligibility. The Orthodontic Entity shall
cooperate in the obtaining and retaining of professional liability insurance by
assuring that each of its Orthodontists is insurable, and participating in an
on-going risk management program.
2.6. Employment Agreement. The parties recognize that the services to
be provided by Premier are feasible only if the Orthodontic Entity operates an
active orthodontic practice to which it and each orthodontist associated with
the Orthodontic Entity devote their full time and attention. Simultaneously with
the execution of this Agreement, each Orthodontist who is or becomes an equity
owner of the Orthodontic Entity or delivers patient care at the Center(s) on
average more than ten (10) days each month, whether on the date hereof or at any
time during the term of this Agreement, shall enter into an employment agreement
with the Orthodontic Entity in substantially the form of that certain Employment
Agreement dated of even date herewith by and between the Orthodontic Entity and
the principal Orthodontist(s) of the Orthodontic Entity.
6
<PAGE> 7
2.7. Confidentiality. The Orthodontic Entity agrees and acknowledges
that all materials provided by Premier or a Premier Affiliate (as hereinafter
defined) to the Orthodontic Entity, including all trade secrets, constitute
"Confidential Information" and are disclosed in confidence and with the
understanding that it constitutes valuable business information developed by
Premier at great expenditures of time, effort, and money. Trade secrets are
property rights protected by law and, for purposes of this letter, shall have
the meaning provided under applicable law, including, in Florida, Fla. Stat. ch.
688.002. The Orthodontic Entity further agrees that it shall not, directly or
indirectly, without the express prior written consent of Premier, use or
disclose such Confidential information for any purpose other than in connection
with the services to be rendered hereunder. The Orthodontic Entity further
agrees: (i) to keep strictly confidential and hold in trust all Confidential
Information and not disclose such Confidential Information to any third party
without the express prior written consent of Premier; and (ii) to impose this
obligation of confidentiality on its affiliates, co-owners, associates,
partners, employees, shareholders, members and independent contractors. The
Orthodontic Entity acknowledges that the disclosure of Confidential Information
to it by Premier 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 Orthodontic Entity shall immediately return and
shall cause its affiliates, co-owners, associates, partners, employees,
shareholders, members and independent contractors to immediately return to
Premier all Confidential Information (only to the extent such Confidential
Information does not include patient information), and the Orthodontic Entity
will not, and will cause its affiliates, co-owners, associates, partners,
employees, shareholders, members and independent contractors not to, thereafter
use, appropriate, or reproduce such Confidential Information. The Orthodontic
Entity 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 Premier, 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, Premier, in addition to any other remedies which
may be available to it, shall be entitled to injunctive or other equitable
relief. As used in this Agreement, the term "Premier Affiliate" shall mean (i)
each corporation or other business entity directly or indirectly controlling,
controlled by, or under common control with Premier and (ii) each orthodontic or
dental practice to which Premier provides management or consulting services, the
employees and principals of such practices, and each corporation or other
business entity directly or indirectly controlling, controlled by, or under
common control with each such practice or the principals thereof.
2.8. Leases. The Orthodontic Entity agrees to sublease from Premier the
Center or Centers leased by Premier at which the Orthodontic Entity is
practicing pursuant to the form of Center Sublease Agreement attached hereto as
Exhibit 2.8. All such Center Sublease Agreements shall include a provision
whereby the parties agree that the Orthodontic Entity maintains complete care,
custody and control over such office space. The lease expenses
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incurred by Orthodontic Entity in connection with the Center Sublease Agreement
will be deemed "Center Expenses" for purposes of Article III of this Agreement.
2.9. Covenant Not to Compete. During the term of this Agreement, the
Orthodontic Entity, and any of its shareholders, agrees not to establish,
develop or open any offices for the provision of orthodontic services within a
ten (10) mile radius of any of the Centers covered by this Agreement (the "Area
of Dominant Influence") without the express written consent of Premier. For a
period of two (2) years following the termination of this Agreement, the
Orthodontic Entity and any of its shareholders shall be prohibited within the
Area of Dominant Influence (i) from advertising in print (except for yellow page
advertising and announcements for the opening of a practice) or electronic media
of any kind, (ii) from soliciting in any manner patients, orthodontists or staff
associated with the Centers, and (iii) from soliciting any referrals from any
dentist who referred one or more patients to the Center within the three (3)
years prior to the date of such termination. In the event the Orthodontic Entity
terminates this Agreement pursuant to Section 5.2(b), then this Section 2.9
shall be void and of no further effect; provided, however, the remainder of this
Agreement shall remain in full force and effect.
III. FINANCIAL ARRANGEMENTS
3.1. Service Fees. Premier shall receive an annual Service Fee, subject
to the provisions of Section 3.3 below, of 13.5% of the Adjusted Gross Revenue
(based on accrual method of accounting). Except as otherwise provided, the
amounts to be paid to Premier under this Section 3.1 shall be payable monthly.
The amounts shall be paid based upon the previous month's operating results of
the Center. Upon preparation of quarterly financial statements, final
adjustments to the Service Fee for the quarter, if any are required, shall be
made and any additional amounts owing to Premier or the Orthodontic Entity shall
then be made. Any audit adjustments shall be reflected in the calculations for
the fourth quarter.
3.2. Center Expenses. Premier shall be responsible for the payment of
all Center Expenses, as defined below, during the term of this Agreement and the
Orthodontic Entity shall immediately reimburse Premier for such payments from
funds held in the Orthodontic Entity Account.
3.3. Definitions. For the purposes of this Agreement, the following
definitions shall apply and shall comply with generally accepted accounting
principles:
(a) "Adjusted Gross Revenue" shall mean Gross Revenue of the
Center less any Adjustments, based on the accrual method of accounting.
(b) "Adjustments" shall mean any adjustments to Gross Revenue
for uncollectible accounts, professional courtesies and other activities,
contractual allowances and discounts that do not generate a collectible
fee.
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(c) "Center Expenses" shall mean all operating and
non-operating expenses incurred in the operation of the Center,
including, without limitation:
(i) Salaries, benefits, payroll taxes, workers
compensation, health insurance, 401(k) and other benefit plans,
and other direct costs of all employees of Premier at the Center,
including dental assistants (but excluding all Orthodontists);
provided that only expenses for health insurance, 401(k) and other
benefit plans approved by the Orthodontic Entity shall be
included;
(ii) Direct costs of all employees or consultants of
Premier who, upon mutual agreement of Premier and the Orthodontic
Entity, provide services at or, if consented to by the Orthodontic
Entity, in connection with the Center required for improved clinic
performance, such as work management, materials management,
purchasing, charge and coding analysis, and business office
consultation;
(iii) Obligations of Premier under leases or subleases
entered into in connection with the operation of the Center;
(iv) Personal property and intangible taxes assessed
against Premier's assets used in connection with the operation of
the Center, commencing on the date of this Agreement;
(v) Malpractice insurance expenses and Orthodontist
recruitment expenses as agreed to by mutual agreement of Premier
and the Orthodontic Entity;
(vi) Property, casualty and liability insurance for the
Center and its operations;
(vii) In the event an opportunity arises for additional
Orthodontists in the Area of Dominant Influence to become employed
by or merge with the Orthodontic Entity, actual out-of-pocket
expenses of Premier personnel working on a specified merger,
whether or not such merger is completed if such merger is approved
or requested by the Orthodontic Entity;
(viii) Amortization of intangible asset value as a result
of each such acquisition referred to in subsection (vii) above;
(ix) Depreciation of all assets used by the Orthodontic
Entity in the operation of the Center;
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(x) Repayment of any interest on funds loaned to the
Orthodontic Entity by Premier in connection with the operation of
the Center, at an interest rate not in excess of the Prime Rate
plus one percent (1%);
(xi) Advertising and other marketing expenses
attributable to the promotion of the Center and/or its
Orthodontist(s); and
(xii) Other expenses incurred by Premier with the consent
of the Orthodontic Entity in carrying out its obligations under
this Agreement for the benefit of the Center or the Orthodontic
Entity; provided, however, that such expenses shall not include
Premier's home office overhead expenses.
"Center Expenses" shall not include:
(i) Any federal or state income taxes; or
(ii) Any personal expenses of the Orthodontist as
permitted in the first sentence of Section 3(b) of that certain
employment agreement(s), by and between the Orthodontist(s) and
the Orthodontic Entity, in excess of three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue.
(d) "Contract" shall mean the agreement entered into by
patients with the Orthodontic Entity for the provision of orthodontic
services at a predetermined fee for an estimated period of treatment.
(e) "Gross Revenue" shall mean all fees and charges recorded or
booked each month by or on behalf of the Orthodontic Entity as a result
of professional orthodontic or other dental services personally furnished
to patients by the Orthodontist and those under the Orthodontist's
supervision and other fees or income generated in their capacity as a
professional prior to any Adjustments.
3.4. Additional Facilities. In the event the parties agree to add an
additional facility in which the Orthodontic Entity will provide services, the
service fees payable to Premier shall be determined by aggregating the results
of the operations of each additional facility with the results of the operations
of the existing Center or Centers and such fees payable to Premier shall be
calculated pursuant to the provisions of Section 3.1. All other provisions of
this Article III shall apply to any additional facilities. As part of its
strategic growth strategy, Premier plans to provide capital support or arrange
favorable funding for orthodontic practice expansion and development. Any
expenditures on practice growth, acquisition or development shall be subject to
approval by Premier's Board of Directors.
3.5. Reasonable Efforts. Premier shall use reasonable efforts to
perform the services contemplated by this Agreement.
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IV. INSURANCE AND INDEMNITY
4.1. Insurance to be Maintained by the Orthodontic Entity. Throughout
the term of this Agreement, the Orthodontic Entity shall maintain comprehensive
professional liability insurance with limits of not less than $500,000 per claim
and with aggregate policy limits of not less than $1,000,000 per Orthodontist
providing services at the Center and a separate limit for the Orthodontic Entity
or such other amounts as required by applicable Florida laws, regulations, rules
or directives. The Orthodontic Entity shall be responsible for all such
liabilities in excess of the limits of such policies. Premier agrees to
negotiate for and cause premiums to be paid with respect to such insurance.
Premiums and deductibles with respect to such policies shall be a Center
Expense.
4.2. Insurance to be Maintained by Premier. Throughout the term of this
Agreement, Premier will use reasonable efforts to provide and maintain, as a
Center Expense, comprehensive general liability and property insurance covering
the Center premises and operations.
4.3. Tail Insurance Coverage. The Orthodontic Entity will cause each
individual Orthodontist providing services at the Center to enter into an
agreement with the Orthodontic Entity that upon termination of such Orthodontic
Entity's relationship with the Orthodontist, for any reason, tail insurance
coverage for a period of three (3) years will be purchased by each Orthodontist.
Such provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by the Orthodontic Entity and the
individual Orthodontists, and the Orthodontic Entity hereby covenants with
Premier to enforce such provisions relating to the tail insurance coverage or to
provide such coverage at the expense of the Orthodontic Entity.
4.4. Additional Insureds. The Orthodontic Entity shall have Premier
named as an additional insured on the Orthodontic Entity's professional
liability insurance programs.
4.5. Indemnification. The Orthodontic Entity shall indemnify, hold
harmless and defend Premier, its officers, directors, shareholders, members, and
employees, from and against any and all liabilities, losses, damages, claims,
causes of action, and expenses (including reasonable attorneys' fees), whether
or not covered by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of medical, dental or
orthodontic services or the performance of any intentional acts, negligent acts
or omissions by the Orthodontic Entity and/or its affiliates, shareholders,
members, agents, employees and/or subcontractors (other than Premier) prior to
and after the date of this Agreement and throughout the term hereof. Premier
shall indemnify, hold harmless and defend the Orthodontic Entity, and its
directors, shareholders, members and employees, from and against any and all
liabilities, losses, damages, claims, 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
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omissions by Premier, a Premier Affiliate and/or their agents, employees and/or
subcontractors (other than the Orthodontic Entity) during the term of this
Agreement.
V. TERM AND TERMINATION
5.1. Term of Agreement. This Agreement shall commence on the date the
Securities and Exchange Commission declares effective Premier's registration
Statement on Form S-1 for the sale of Premier's common stock in an initial
public offering (the "IPO") and shall expire on the twentieth (20th) anniversary
thereof unless earlier terminated pursuant to the terms hereof. In the event
that Premier does not complete the IPO on or before October 15, 1997, this
Agreement shall be null and void and of no further effect between the parties
hereto.
5.2. Termination by the Orthodontic Entity. The Orthodontic Entity 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 Premier, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by Premier, except for the filing of a petition in
involuntary bankruptcy against Premier which is dismissed within thirty (30)
days thereafter, the Orthodontic Entity may give written notice of the immediate
termination of this Agreement.
(b) In the event Premier 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 ninety (90) days after written notice thereof has
been given to Premier by the Orthodontic Entity (which notice shall contain
specific details of the reason for such default), the Orthodontic Entity may
terminate this Agreement; provided, however, if the nature of such default is
such that cure is not capable within said 90-day period, then Premier shall have
such additional time as may be required to effect and complete such cure
provided that Premier shall commence such cure within the aforesaid 90-day
period and shall prosecute such cure to completion with reasonable diligence.
(c) In the event that the IPO has not been completed on or before
October 15, 1997, the Orthodontic Entity may terminate this Agreement.
5.3. Termination by Premier. Premier 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 Orthodontic Entity, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the Orthodontic Entity, except for
the filing of a petition in involuntary bankruptcy against the Orthodontic
Entity which is dismissed within thirty (30) days thereafter, Premier may give
written notice of the immediate termination of this Agreement.
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(b) In the event the Orthodontic Entity 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 ninety (90) days after written
notice thereof has been given to the Orthodontic Entity by Premier, Premier may
terminate this Agreement.
(c) In the event that the IPO has not been completed on or before
October 15, 1997, Premier may terminate this Agreement.
5.4. Actions after Termination. Upon termination of this Agreement by
either party for any reason other than a default by the Orthodontic Entity or
upon expiration of this Agreement, the Orthodontic Entity may, and upon
termination of this Agreement by Premier due to the reasons set forth in Section
5.3(b) hereof, the Orthodontic Entity shall:
(a) Purchase all improvements, additions or leasehold improvements
which have been made by Premier and which relate solely to the performance of
its obligations under this Agreement at adjusted book value;
(b) Assume all debt and all contracts, payables and leases which are
obligations of Premier and which relate solely to the performance of its
obligations under this Agreement or the properties subleased by Premier; and
(c) Purchase from Premier at book value all of the equipment of the
Center, including all replacements and additions thereto made by Premier
pursuant to the performance of its obligations under this Agreement, and all
other assets, including inventory and supplies, tangibles and intangibles
(including but not limited to accounts receivable), set forth on the balance
sheet prepared for the month most recently ended prior to the date of such
termination in accordance with GAAP to reflect operations of the Center,
depreciation, amortization and other adjustments of assets shown on such balance
sheet.
5.5. Closing of Repurchase by the Orthodontic Entity and Effective Date
of Termination. Unless another form of payment is agreed to by Premier at such
time, the Orthodontic Entity shall pay cash to Premier for the assets
repurchased pursuant to Section 5.4; provided, however, that such cash payments
for such portion of contracts receivable for services determined in accordance
with GAAP to constitute accounts receivable shall be made as such accounts
receivables are actually collected by the Orthodontic Entity; provided, further,
that the Orthodontic Entity shall in any event pay in cash to Premier the amount
of accounts receivable not collected by the Orthodontic Entity within ninety
(90) days of termination that are not deemed uncollectible accounts. The amount
of the purchase price shall be reduced by the amount of debt and liabilities of
Premier assumed by the Orthodontic Entity and shall also be reduced by any
payment Premier has failed to make under this Agreement. The Orthodontic Entity
and any Orthodontist associated with the Orthodontic Entity shall execute such
documents as may be required to assume the liabilities set forth in Section
5.4(c) and shall use its best efforts to remove Premier from any liability with
respect to such
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repurchased assets and with respect to any property leased or subleased by
Premier. The closing date for the repurchase shall be determined by the
Orthodontic Entity, but shall in no event occur later than 180 days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and the Orthodontic
Entity and Premier shall be released from the restrictive covenants provided for
in Section 2.9 on the closing date. 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.
5.6. Patient Records. Upon termination of this Agreement, the
Orthodontic Entity shall retain all patient medical records maintained by the
Orthodontic Entity or Premier in the name of the Orthodontic Entity. During the
term of this Agreement, and thereafter, the Orthodontic Entity or its designee
shall have reasonable access during normal business hours to the Orthodontic
Entity's and Premier's records, including, but not limited to, records of
collections, expenses and disbursements as kept by Premier in performing
Premier's obligations under this Agreement, and the Orthodontic Entity may copy
any or all such records.
VI. INDEPENDENT CONTRACTOR
6.1. Orthodontic Entity's Control Over Professional Services.
Notwithstanding the authority granted to Premier herein, Premier and the
Orthodontic Entity agree that the affiliated Orthodontist, personally or through
any of his professional employees or agents, shall have control or supervision
over the provision of all professional services, with the sole authority to
direct the professional, and ethical aspects of his orthodontic practice.
Premier will have no authority, directly or indirectly, to perform, and will not
perform, any orthodontic function. Premier may, however, advise the Orthodontic
Entity as to the relationship between its performance of orthodontic functions
and the overall administrative and business functions of its practice.
6.2. Independent Relationship. The Orthodontic Entity and Premier
intend to act and perform as independent contractors, and the provisions hereof
are not intended to create any partnership, joint venture, agency or employment
relationship between the parties. The Orthodontic Entity will not have any claim
under this Agreement, or otherwise, against Premier for vacation pay, sick
leave, unemployment insurance, worker's compensation, disability benefits or
employee benefits of any kind.
6.3. Other Professionals. No provision of this Agreement is intended to
limit Premier's right, authority, or ability under applicable law to contract
with other dentists or physicians, or to employ, contract with, or enter into
any partnership or joint venture with any healthcare professional; provided that
the exercise of such right, authority or ability does not contravene the terms
of this Agreement.
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6.4 Patient Care. Nothing in this Agreement is intended to interfere,
or shall be construed as interfering, in any way with the Orthodontist(s)'s
ability to independently exercise professional and ethical judgment in the
performance of his patient care responsibilities.
VII. GENERAL PROVISIONS
7.1. Assignment. This Agreement shall be assignable by Premier to (i)
any person, firm or corporation that controls or is under common control with
Premier, (ii) US Orthodontic Care, Inc. ("USOC") or any person, firm or
corporation that controls or is under common control with USOC, or (iii) any
entity that results from a merger or other combination between Premier and USOC
("Newco") and any person, firm or corporation that controls or is under common
control with Newco. Except as set forth above, neither Premier nor the
Orthodontic Entity shall have the right to assign their respective rights and
obligations hereunder without the written consent of the other party, which
consent shall not be unreasonably withheld. Subject to this provision, this
Agreement shall be binding upon the parties hereto, and their successors and
assigns.
7.2. Whole Agreement; Modification. There are no other agreements or
understandings, written or oral, between the parties regarding this Agreement,
the Exhibits and the Schedules, other than as set forth herein. This Agreement
shall not be modified or amended except by a written document executed by both
parties to this Agreement, and such written modification(s) shall be attached
hereto.
7.3. Notices. All notices required or permitted by this Agreement shall
be in writing and shall be addressed as follows:
To Premier: Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard, Suite 200
Torrance, California 90505
Attn: Mr. Sam Westover, Chief Executive Officer
Telecopier: (310) 791-5660
Telephone: (310) 791-5657
With a copy to: Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attn: Paul A. Quiros, Esquire
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To the _________________________________
Orthodontic Entity: _________________________________
_________________________________
_________________________________
or to such other address as either party shall notify the other.
7.4. Waiver of Provisions. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a waiver
of any other terms and conditions hereof.
7.5. Governing Law. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the laws of
the State of Florida. The parties acknowledge that Premier 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 Premier 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 Premier
shall be deemed waived and forever unenforceable and the provision of Section
7.12 shall be applicable.
7.6. 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.
7.7. Compliance with Applicable Laws. Both parties shall comply with
all applicable federal, state and local laws, regulations and restrictions in
the conduct of their obligations under this Agreement.
7.8. Severability. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable for
any reason, the remainder of this Agreement shall be effective and binding upon
the parties.
7.9. Additional Documents. Each of the parties hereto agrees to execute
any document or documents that may be requested from time to time by the other
party to implement or complete such party's obligations pursuant to this
Agreement.
7.10. Attorneys' Fees. If legal action is commenced by either party to
enforce or defend its rights under this Agreement, the prevailing party in such
action shall be entitled to recover its costs and reasonable attorneys' fees in
addition to any other relief granted.
7.11. Confidentiality. Neither party hereto shall disseminate or release
to any third party any information regarding any provision of this Agreement, or
any financial information
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regarding the other (past, present or future) that was obtained by the other in
the course of the negotiation of this Agreement or in the course of the
performance of this Agreement, without the other party's 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.
7.12. Contract Modifications for Prospective Legal Events. In the event
any state or federal laws or regulations, 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 or regulations, the Orthodontic Entity and Premier shall amend this
Agreement as necessary. To the maximum extent possible, any such amendment shall
preserve the underlying economic and financial arrangements between the
Orthodontic Entity and Premier.
7.13. 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.
7.14. Language Construction. The language in all parts of this Agreement
shall be construed, in all cases, according to the parties' intent and the
parties hereto 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.
7.15. No Obligation to Third Parties. None of the obligations and duties
of Premier or the Orthodontic Entity under this Agreement shall in any way or in
any manner be deemed to create any obligation of Premier or of the Orthodontic
Entity to, or any rights in, any person or entity not a party to this Agreement.
7.16. Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same Agreement.
7.17. Singular and Plural; Gender. Where the context so requires or
permits, the use of the singular form includes the plural, and the use of the
plural form includes the singular, and the use of any gender includes any and
all genders.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ORTHODONTIC ENTITY:
-------------------------------------------------
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
PREMIER:
PREMIER ORTHODONTIC GROUP, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
18
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EXHIBIT 10.2
FORM OF
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (this "Agreement"), dated as of ______________
by and between US ORTHODONTIC CARE, INC., a Georgia corporation, and its
successors and assigns ("USOC"), and ___________________________, a
_____________ professional association (the "Orthodontic Entity").
RECITALS:
WHEREAS, the Orthodontic Entity owns and operates an orthodontic
practice with offices located in the facilities identified in Exhibit 1.2 (the
"Center(s)") and furnishes orthodontic and other dental care to the general
public through the services of the orthodontist(s) and dentist(s) affiliated
with the Orthodontic Entity to provide patient care at the Center (the
"Orthodontist(s)"); and
WHEREAS, USOC is a company which has been formed to own the assets of,
provide personnel and practice management to, and manage the business affairs of
orthodontic practices;
WHEREAS, USOC's services are designed to improve the efficiency and
profitability of orthodontic practices while enhancing the ability of the
orthodontists in such practices to render quality orthodontic care to their
patients;
WHEREAS, the Orthodontic Entity and USOC mutually desire to enter into
a business relationship under the terms of this Agreement to help the
Orthodontic Entity achieve the above goals.
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
I. RESPONSIBILITIES AND OBLIGATIONS OF USOC
1.1. General. USOC shall provide the Orthodontic Entity with
comprehensive practice management, financial and marketing services, and such
facilities, equipment, and support personnel as reasonably required by the
Orthodontic Entity to operate its practice, as determined by USOC in
consultation with the Orthodontist. The Orthodontic Entity hereby appoints USOC
as the sole and exclusive business manager of the Center and agrees that USOC
shall have all power and authority reasonably necessary to manage the business
affairs of the Center and carry out USOC's duties under this Agreement, subject
to the requirements of the applicable provisions of ____________ law relating to
the practice of dentistry. Notwithstanding anything contained herein to the
contrary, the Orthodontic Entity (or the Orthodontist as appropriate) shall
retain control over all aspects of and decisions directly affecting the course
of treatment of any patients of the Orthodontic Entity.
<PAGE> 2
1.2. Facilities and Equipment. The parties expressly agree that all
office space and facilities provided by USOC to the Orthodontic Entity hereunder
shall be leased or provided to the Orthodontic Entity by USOC at the rental
amount incurred by USOC under a lease or other agreement or arrangement under
which the Orthodontic Entity shall maintain complete care, custody, and control
of the foregoing. Subject to the foregoing, USOC agrees to provide or arrange
for on behalf of the Orthodontic Entity the offices, facilities, furnishings,
equipment, and related services described in Exhibit 1.2 hereto, as such Exhibit
may be amended from time to time, and, on an ongoing basis, shall provide for
the maintenance and upkeep of the foregoing as a Center Expense (as hereinafter
defined); provided, however that the Orthodontic Entity shall maintain complete
control over and shall make all decisions directly affecting the complete care,
custody and control over all dental equipment. USOC additionally agrees, on an
ongoing basis, to evaluate and consult with the Orthodontic Entity on the
equipment needs of and the efficiency and adequacy of the facilities utilized by
the Center. Unless the Orthodontic Entity chooses to directly purchase
furnishings, equipment and related assets in the future, USOC shall purchase
such assets and lease such assets to the Orthodontic Entity under a capital
leasing arrangement with such terms as mutually agreed to by the Orthodontic
Entity and USOC. If the Orthodontic Entity chooses to purchase such assets, then
it shall depreciate such assets in accordance with generally accepted accounting
principles ("GAAP").
1.3. Personnel and Payroll. USOC shall employ all of the Center's
staff, except the Orthodontists and dental hygienists, as determined by the
Orthodontic Entity in consultation with USOC, to be required for the operation
of the Center. Additionally, USOC shall be responsible for the performance of
all payroll and payroll accounting functions. The Orthodontic Entity shall be
responsible for determining the hours of practice for the Center.
1.4. Business Systems, Procedures and Forms. In consultation with the
Orthodontic Entity, USOC shall establish business systems and procedures for the
Center developed by USOC that are designed to improve the Center's operating
efficiency. USOC shall provide training to the Center's staff in the
implementation and operation of such business systems and procedures. USOC shall
additionally provide the Orthodontic Entity with and train the Center's staff in
the use of clinical forms, including, without limitation, forms for patient
evaluations and treatment plans. The Orthodontic Entity expressly acknowledges
and agrees that it shall have no property rights in the 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 hereof and subject to the restrictions on the use,
appropriation, and reproduction of such Confidential Information provided for in
Section 2.7.
1.5. Purchasing, Accounts Payable and Inventory Control. In
consultation with the Orthodontic Entity, USOC shall purchase and maintain as a
Center Expense all inventory and supplies required by the Center. The price
charged to the Center for such inventory and supplies shall be the same as the
price paid by USOC, including any rebates. In any event, the Orthodontic Entity
has the right to purchase its supplies from the supplier of its choice.
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USOC 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 Center.
1.6. Information Systems and Accounting. USOC shall establish,
maintain and train the Center's staff in the use of information systems to
produce financial and operational information concerning the Center's
operations. USOC shall analyze such information on an ongoing basis in order to
advise the Orthodontic Entity on ways of improving operating efficiencies. USOC
shall provide or arrange for all accounting and bookkeeping services related to
the Center's operations, provided that such services are incurred in the
ordinary course of business.
1.7. Legal Services. USOC shall arrange for all legal services
reasonably required by the Center, excluding the costs of malpractice litigation
which shall be the sole responsibility of the Orthodontist. USOC shall use
reasonable efforts to obtain under its blanket policies for the Orthodontist as
a Center Expense malpractice insurance that meets the coverage requirements set
forth in Section 4.1 hereof.
1.8. Marketing. The parties expressly acknowledge and agree that the
Orthodontic Entity shall exercise control over all policies and decisions
relating to pricing, credit, refunds, warranties and advertising. Subject to the
foregoing, USOC shall design and execute a marketing plan to promote the
Orthodontist's professional services. In connection with such marketing plan,
USOC shall advise the affiliated Orthodontist on establishing and maintaining a
plan for patients' payment for orthodontic services on an installment plan
basis. All marketing activities hereunder shall be conducted in compliance with
all applicable laws and regulations governing advertising by the dental
profession.
1.9. Planning. USOC will assess and advise the Orthodontic Entity on
the establishment of orthodontic offices in new locations and, subject to mutual
agreement, will provide assistance to the Orthodontic Entity in the opening of
such new offices, including assistance in the location of such offices and in
the sale of existing practices, as appropriate.
1.10. Financial Services. On a continuous basis, the accounts
receivable of the Orthodontic Entity shall be deposited with USOC for the
Orthodontic Entity's account, and USOC shall use the funds collected from such
accounts receivable to pay the Service Fee (as hereinafter set forth) and the
expenses of the Orthodontic Entity, including the Center Expenses and shall
return to the Orthodontic Entity any funds remaining after payment in full of
such items. USOC shall be responsible for (i) billing and collecting payments
for all orthodontic services rendered by the Orthodontist to his patients and
for all other professional and Center services, with all such billing and
collecting to be done in the name of the Orthodontic Entity; (ii) receiving
payments from patients, insurance companies and all other third party payors;
(iii) taking possession of and endorsing in the name of the Orthodontic Entity
any notes, checks, money orders, insurance payments and other instruments
received
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in payment of accounts receivable; (iv) administering the Orthodontic Entity's
payroll as applicable; (v) preparing and submitting to the Orthodontist monthly
operating data and quarterly financial reports with respect to the operation of
the Center; and (vii) paying all Center Expenses, as set forth in Section 3. No
funds from the Medicare or Medicaid programs shall be billed or collected by the
Orthodontic Entity or by USOC on the Orthodontic Entity's behalf, provided,
however, that all such funds collected shall be immediately deposited into the
Orthodontic Entity Account (as hereinafter defined) upon receipt thereof. The
Orthodontic Entity and the Orthodontist hereby appoint USOC for the term of this
Agreement to be their true and lawful attorney-in-fact for the purposes set
forth above in this Section.
1.11. Disbursement of Funds. (a) All monies collected for the
Orthodontic Entity by USOC pursuant to Section 1.10 above shall be deposited
into an account (the "Orthodontic Entity Account") with a bank whose deposits
are insured with the Federal Deposit Insurance Corporation. The Orthodontic
Entity Account shall contain the name of the Orthodontic Entity, but USOC shall
make all disbursements therefrom. USOC shall account for all monies so disbursed
from the Orthodontic Entity Account. From the funds collected and deposited each
month by USOC in the Orthodontic Entity Account, USOC shall make the following
disbursements, among others, promptly when payable:
(i) Compensation payable to all employees of the Orthodontic
Entity, and all taxes and assessments payable to local, state and
Federal governments in connection with the employment of such
personnel; and
(ii) All sums otherwise due and payable by the Orthodontic
Entity as Center Expenses, as defined in Article III hereof, as well as
fees payable to USOC pursuant to Article III hereof.
(b) In the event the funds in the Orthodontic Entity Account will, at
any time, be insufficient to cover current expenses, USOC shall notify the
Orthodontic Entity and USOC shall advance to the Orthodontic Entity the
necessary funds to pay current expenses for the benefit of the Orthodontic
Entity, which advances will be deemed to be loans to the Orthodontic Entity to
be repaid upon such terms as agreed to by the Orthodontic Entity and USOC, which
indebtedness shall be deemed a Center Expense for purposes of Article III
hereof; provided, however, that in any event the outstanding principal amount of
such indebtedness shall bear interest at an annual rate adjusted on the first
calendar day of each month to reflect that certain rate from time to time
published by the Wall Street Journal as the prime rate, as of the last business
day of the immediately preceding month for which such prime rate was published
(the "Prime Rate"), plus one percent (1%).
1.12. Records. USOC shall supervise, manage, organize and develop
systems with respect to all files and records relating to the operation of the
Center, including but not limited to accounting, billing, patient records, and
collection records. Patient records shall at all times be and remain the
property of the Orthodontist and shall be located at the
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Orthodontic Entity's facilities so that they are readily accessible for patient
care. The management of all files and records shall comply with applicable state
and federal statutes. USOC shall use its reasonable efforts to preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purpose necessary to perform the services set forth
herein; provided, however, in no event shall a breach of said confidentiality be
deemed a default under this Agreement.
II. OBLIGATIONS OF THE ORTHODONTIC ENTITY
2.1. Employment of Orthodontists and Rendering of Patient Care. The
Orthodontic Entity shall be responsible for the employment and professional
supervision of all Orthodontist(s) and dental hygienists affiliated with the
Orthodontic Entity and all orthodontic care rendered to patients shall be
rendered by such Orthodontist(s). Additionally, the Orthodontist shall be
responsible for the direct professional supervision of all hygienists and
technicians in their rendering of patient care.
2.2. Professional Services. The Orthodontic Entity shall use and occupy
the offices and facilities designated on Exhibit 1.2 exclusively for the
practice of orthodontic and general dentistry services, and shall comply with
all applicable local rules, ordinances and all standards of dental and
orthodontic care. It is expressly acknowledged by the parties that the
orthodontic practice conducted at the Center shall be conducted solely by the
Orthodontists associated with the Orthodontic Entity except those additional
orthodontists employed by the general dentists' offices from which the
Orthodontic Entity rents only space, and no other orthodontist shall be
permitted to use or occupy the Center, except as provided in Exhibit 2.2. The
Orthodontic Entity shall provide professional services to patients hereunder in
compliance at all times with ethical standards, and laws and regulations
applying to the dental profession. The Orthodontic Entity shall ensure that each
Orthodontist providing orthodontic or dental services to patients is licensed by
the state in which the Center is located. In the event that any disciplinary,
medical malpractice or other actions are initiated against any such
Orthodontist, the Orthodontic Entity shall immediately inform USOC of such
action and the underlying facts and circumstances. The Orthodontic Entity agrees
to cooperate with and participate in quality assurance/utilization review
programs established by USOC or mandated by accreditation and/or licensure
standards applicable to the practice of orthodontics and dentistry. Deficiencies
discovered in the performance of any personnel or in the quality of professional
services shall be reported immediately to USOC, and appropriate steps shall be
taken by the Orthodontic Entity at once to remedy such deficiencies. Any
termination of an Orthodontist other than for cause (as such term is defined in
the Employment Agreement between the Orthodontic Entity and the Orthodontist)
must be approved by a majority of the Board of Advisors of USOC.
2.3. Records. The Orthodontic Entity will keep or cause to be kept
accurate, complete and timely medical and other records of all patients. Such
records shall be
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sufficient to enable USOC, on behalf of the Orthodontic Entity, to obtain
payment for the services provided by the Orthodontist.
2.4. Professional Expenses. Payments expended each fiscal year by the
Orthodontic Entity on behalf of the Orthodontist and other orthodontists or
dentists delivering patient care at the Center(s) for continuing education,
seminars, professional license fees and dues, professional memberships, expenses
related to a company automobile for the Orthodontist, and all other expenses of
the Orthodontist and other orthodontists and dentists delivering patient care at
the Center(s) that do not directly benefit the Orthodontic Entity (as determined
by the auditors for USOC), up to the amount of three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue, shall be considered a Center
Expense. To the extent that such expenses exceed three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue for such year, the Center Expenses
shall be reduced by such excess amount solely for the purpose of calculating the
Service Fee (as defined in the Service Agreement); provided, however, that the
Orthodontic Entity shall pay such excess expenses. Notwithstanding the
foregoing, the Orthodontic Entity 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 the
Orthodontist. The Orthodontic Entity shall ensure that the Orthodontist
participates in such continuing education as is necessary for such Orthodontist
to remain current.
2.5. Professional Insurance Eligibility. The Orthodontic Entity shall
cooperate in the obtaining and retaining of professional liability insurance by
assuring that each of its Orthodontists is insurable, and participating in an
on-going risk management program.
2.6. Employment Agreement. The parties recognize that the services to
be provided by USOC are feasible only if the Orthodontic Entity operates an
active orthodontic practice to which it and each orthodontist associated with
the Orthodontic Entity devote their full time and attention. Simultaneously with
the execution of this Agreement, each Orthodontist who is or becomes an equity
owner of the Orthodontic Entity or delivers patient care at the Center(s) on
average more than ten (10) days each month, whether on the date hereof or at any
time during the term of this Agreement, shall enter into an employment agreement
with the Orthodontic Entity in substantially the form of that certain Employment
Agreement dated of even date herewith by and between the Orthodontic Entity and
the principal Orthodontist(s) of the Orthodontic Entity.
2.7. Confidentiality. The Orthodontic Entity agrees and acknowledges
that all materials provided by USOC or a USOC Affiliate (as hereinafter defined)
to the Orthodontic Entity, including all trade secrets, constitute "Confidential
Information" and are disclosed in confidence and with the understanding that it
constitutes valuable business information developed by USOC at great
expenditures of time, effort, and money. Trade secrets are property rights
protected by law and, for purposes of this letter, shall have the meaning
provided under applicable _______________ law. The Orthodontic Entity further
agrees that it shall not, directly or indirectly, without the express prior
written consent of USOC, use or
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disclose such Confidential information for any purpose other than in connection
with the services to be rendered hereunder. The Orthodontic Entity further
agrees: (i) to keep strictly confidential and hold in trust all Confidential
Information and not disclose such Confidential Information to any third party
without the express prior written consent of USOC; and (ii) to impose this
obligation of confidentiality on its affiliates, co-owners, associates,
partners, employees, shareholders, members and independent contractors. The
Orthodontic Entity acknowledges that the disclosure of Confidential Information
to it by USOC 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 Orthodontic Entity shall immediately return and shall
cause its affiliates, co-owners, associates, partners, employees, shareholders,
members and independent contractors to immediately return to USOC all
Confidential Information (only to the extent such Confidential Information does
not include patient information), and the Orthodontic Entity will not, and will
cause its affiliates, co-owners, associates, partners, employees, shareholders,
members and independent contractors not to, thereafter use, appropriate, or
reproduce such Confidential Information. The Orthodontic Entity 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 USOC, 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, USOC, in addition to any other remedies which may be available to it,
shall be entitled to injunctive or other equitable relief. As used in this
Agreement, the term "USOC Affiliate" shall mean (i) each corporation or other
business entity directly or indirectly controlling, controlled by, or under
common control with USOC and (ii) each orthodontic or dental practice to which
USOC provides management or consulting services, the employees and principals of
such practices, and each corporation or other business entity directly or
indirectly controlling, controlled by, or under common control with each such
practice or the principals thereof.
2.8. Leases. The Orthodontic Entity agrees to sublease from USOC the
Center or Centers leased by USOC at which the Orthodontic Entity is practicing
pursuant to the form of Center Sublease Agreement attached hereto as Exhibit
2.8. All such Center Sublease Agreements shall include a provision whereby the
parties agree that the Orthodontic Entity maintains complete care, custody and
control over such office space. The lease expenses incurred by Orthodontic
Entity in connection with the Center Sublease Agreement will be deemed "Center
Expenses" for purposes of Article III of this Agreement.
2.9. Covenant Not to Compete. During the term of this Agreement, the
Orthodontic Entity, and any of its shareholders, agrees not to establish,
develop or open any offices for the provision of orthodontic services within a
ten (10) mile radius of any of the Centers covered by this Agreement (the "Area
of Dominant Influence") without the express written consent of USOC. For a
period of two (2) years following the termination of this Agreement, the
Orthodontic Entity and any of its shareholders shall be prohibited within the
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Area of Dominant Influence (i) from advertising in print (except for yellow page
advertising and announcements for the opening of a practice) or electronic media
of any kind, (ii) from soliciting in any manner patients, orthodontists or staff
associated with the Centers, and (iii) from soliciting any referrals from any
dentist who referred one or more patients to the Center within the three (3)
years prior to the date of such termination. In the event the Orthodontic Entity
terminates this Agreement pursuant to Section 5.2(b), then this Section 2.9
shall be void and of no further effect; provided, however, the remainder of this
Agreement shall remain in full force and effect.
III. FINANCIAL ARRANGEMENTS
3.1. Service Fees. In consideration of the services to be provided
hereunder, for the development of services that will be made available to the
Orthodontic Entity in the future (on terms and conidtions to be agreed upon),
and to provide a reasonable payment for its corporate overhead and profit, USOC
shall receive a Service Fee, subject to the provisions of Section 3.3 below, of
between 14% and 17% of the Adjusted Gross Revenue as determined pursuant to
Exhibit 3.1 attached hereto and incorporated herein by reference. Except as
otherwise provided, the amounts to be paid to USOC under this Section 3.1 shall
be payable monthly. The amounts shall be estimated based upon the previous
month's operating results of the Center. Adjustments to the estimated payments
shall be made to reconcile actual amounts due under this Section 3.1, by the end
of the following month. Upon preparation of quarterly financial statements,
final adjustments to the Service Fee for the quarter shall be made and any
additional amounts owing to USOC or the Orthodontic Entity shall then be made.
Any audit adjustments shall be reflected in the calculations for the fourth
quarter.
3.2. Center Expenses. USOC shall be responsible for the payment of all
Center Expenses, as defined below, during the term of this Agreement and the
Orthodontic Entity shall immediately reimburse USOC for such payments from funds
held in the Orthodontic Entity Account.
3.3. Definitions. For the purposes of this Agreement, the following
definitions shall apply and shall comply with generally accepted accounting
principles:
(a) "Adjusted Gross Revenue" shall mean Gross Revenue of the
Center less any Adjustments, based on the accrual method of accounting.
(b) "Adjustments" shall mean any adjustments to Gross Revenue
for uncollectible accounts, professional courtesies and other
activities, contractual allowances and discounts that do not generate a
collectible fee.
(c) "Center Expenses" shall mean all operating and non-operating
expenses incurred in the operation of the Center, including, without
limitation:
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(i) Salaries, benefits, payroll taxes, workers
compensation, health insurance, 401(k) and other benefit
plans, and other direct costs of all employees of USOC at the
Center, including dental assistants (but excluding all
Orthodontists); provided that only expenses for health
insurance, 401(k) and other benefit plans approved by the
Orthodontic Entity shall be included;
(ii) Direct costs of all employees or consultants
of USOC who, upon mutual agreement of USOC and the Orthodontic
Entity, provide services at or, if consented to by the
Orthodontic Entity, in connection with the Center required for
improved clinic performance, such as work management,
materials management, purchasing, charge and coding analysis,
and business office consultation;
(iii) Obligations of USOC under leases or subleases
entered into in connection with the operation of the Center;
(iv) Personal property and intangible taxes
assessed against USOC's assets used in connection with the
operation of the Center, commencing on the date of this
Agreement;
(v) Malpractice insurance expenses and
Orthodontist recruitment expenses as agreed to by mutual
agreement of USOC and the Orthodontic Entity;
(vi) Property, casualty and liability insurance
for the Center and its operations;
(vii) In the event an opportunity arises for
additional Orthodontists in the Area of Dominant Influence to
become employed by or merge with the Orthodontic Entity,
actual out-of-pocket expenses of USOC personnel working on a
specified merger, whether or not such merger is completed if
such merger is approved or requested by the Orthodontic
Entity;
(viii) Amortization of intangible asset value as a
result of each such acquisition referred to in subsection
(vii) above;
(ix) Depreciation of all assets used by the
Orthodontic Entity in the operation of the Center;
(x) Repayment of any interest on funds loaned to
the Orthodontic Entity by USOC in connection with the
operation of the Center, at an interest rate not in excess of
the Prime Rate plus one percent (1%);
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(xi) Advertising and other marketing expenses
attributable to the promotion of the Center and/or its
Orthodontist(s); and
(xii) Other expenses incurred by USOC with the
consent of the Orthodontic Entity in carrying out its
obligations under this Agreement for the benefit of the Center
or the Orthodontic Entity; provided, however, that such
expenses shall not include USOC's home office overhead
expenses.
"Center Expenses" shall not include:
(i) Any federal or state income taxes; or
(ii) Any personal expenses of the Orthodontist as
permitted in the first sentence of Section 3(b) of that
certain employment agreement(s), by and between the
Orthodontist(s) and the Orthodontic Entity, in excess of three
percent (3%) of the Orthodontic Entity's Adjusted Gross
Revenue.
(d) "Contract" shall mean the agreement entered into by
patients with the Orthodontic Entity for the provision of orthodontic
services at a predetermined fee for an estimated period of treatment.
(e) "Gross Revenue" shall mean all fees and charges recorded
or booked each month by or on behalf of the Orthodontic Entity as a
result of professional orthodontic or other dental services personally
furnished to patients by the Orthodontist and those under the
Orthodontist's supervision and other fees or income generated in their
capacity as a professional prior to any Adjustments.
3.4. Additional Facilities. In the event the parties agree to add
an additional facility in which the Orthodontic Entity will provide services,
the service fees payable to USOC shall be determined by aggregating the results
of the operations of each additional facility with the results of the operations
of the existing Center or Centers and such fees payable to USOC shall be
calculated pursuant to the provisions of Section 3.1. All other provisions of
this Article III shall apply to any additional facilities. As part of its
strategic growth strategy, USOC plans to provide capital support or arrange
favorable funding for orthodontic practice expansion and development. Any
expenditures on practice growth, acquisition or development shall be subject to
approval by USOC's Board of Directors.
3.5. Reasonable Efforts. USOC shall use reasonable efforts to
perform the services contemplated by this Agreement.
IV. INSURANCE AND INDEMNITY
4.1. Insurance to be Maintained by the Orthodontic Entity.
Throughout the term of this Agreement, the Orthodontic Entity shall maintain
comprehensive professional liability
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insurance with limits of not less than $500,000 per claim and with aggregate
policy limits of not less than $1,000,000 per Orthodontist providing services at
the Center and a separate limit for the Orthodontic Entity or such other amounts
as required by applicable ______________ laws, regulations, rules or directives.
The Orthodontic Entity shall be responsible for all such liabilities in excess
of the limits of such policies. USOC agrees to negotiate for and cause premiums
to be paid with respect to such insurance. Premiums and deductibles with respect
to such policies shall be a Center Expense.
4.2. Insurance to be Maintained by USOC. Throughout the term of this
Agreement, USOC will use reasonable efforts to provide and maintain, as a Center
Expense, comprehensive general liability and property insurance covering the
Center premises and operations.
4.3. Tail Insurance Coverage. The Orthodontic Entity will cause each
individual Orthodontist providing services at the Center to enter into an
agreement with the Orthodontic Entity that upon termination of such Orthodontic
Entity's relationship with the Orthodontist, for any reason, tail insurance
coverage for a period of three (3) years will be purchased by each Orthodontist.
Such provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by the Orthodontic Entity and the
individual Orthodontists, and the Orthodontic Entity hereby covenants with USOC
to enforce such provisions relating to the tail insurance coverage or to provide
such coverage at the expense of the Orthodontic Entity.
4.4. Additional Insureds. The Orthodontic Entity shall have USOC named
as an additional insured on the Orthodontic Entity's professional liability
insurance programs.
4.5. Indemnification. The Orthodontic Entity shall indemnify, hold
harmless and defend USOC, its officers, directors, shareholders, members, and
employees, from and against any and all liabilities, losses, damages, claims,
causes of action, and expenses (including reasonable attorneys' fees), whether
or not covered by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of medical, dental or
orthodontic services or the performance of any intentional acts, negligent acts
or omissions by the Orthodontic Entity and/or its affiliates, shareholders,
members, agents, employees and/or subcontractors (other than USOC) prior to and
after the date of this Agreement and throughout the term hereof. USOC shall
indemnify, hold harmless and defend the Orthodontic Entity, and its directors,
shareholders, members and employees, from and against any and all liabilities,
losses, damages, claims, 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 USOC, a USOC Affiliate and/or their agents,
employees and/or subcontractors (other than the Orthodontic Entity) during the
term of this Agreement.
V. TERM AND TERMINATION
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5.1. Term of Agreement. This Agreement shall commence on the date the
Securities and Exchange Commission declares effective USOC's registration
Statement on Form S-1 for the sale of USOC's common stock in an initial public
offering (the "IPO") and shall expire on the twentieth (20th) anniversary
thereof unless earlier terminated pursuant to the terms hereof. In the event
that USOC does not complete the IPO on or before October 15, 1997, this
Agreement shall be null and void and of no further effect between the parties
hereto.
5.2. Termination by the Orthodontic Entity. The Orthodontic Entity 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 USOC, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by USOC, except for the filing of a petition in
involuntary bankruptcy against USOC which is dismissed within thirty (30) days
thereafter, the Orthodontic Entity may give written notice of the immediate
termination of this Agreement.
(b) In the event USOC 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 ninety (90) days after written notice thereof has been
given to USOC by the Orthodontic Entity (which notice shall contain specific
details of the reason for such default), the Orthodontic Entity may terminate
this Agreement; provided, however, if the nature of such default is such that
cure is not capable within said 90-day period, then USOC shall have such
additional time as may be required to effect and complete such cure provided
that USOC shall commence such cure within the aforesaid 90-day period and shall
prosecute such cure to completion with reasonable diligence.
(c) In the event that the IPO has not been completed on or before
October 15, 1997, the Orthodontic Entity may terminate this Agreement.
(d) In the event that a "Change in Control" (as herein defined) occurs
with respect to USOC, the Orthodontic Entity may, within 10 days after the
expiration of the Approval Period (as herein defined), terminate this Agreement
by providing five (5) days prior written notice to USOC. For purposes of this
Section, "Change in Control" means an acquisition or aggregation of any voting
securities of USOC by a "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) immediately after which such person is or
becomes the beneficial owner, directly or indirectly, of 15% or more of the
combined voting power of USOC's then outstanding voting securities; provided,
however, that no acquisition or aggregation of USOC's voting securities shall be
deemed a "Change in Control" if such acquisition or aggregation (i) has the
prior approval of USOC's board of directors, or (ii) is approved by USOC's board
of directors within 60 days after USOC receives notice of such acquisition or
aggregation (the "Approval Period").
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5.3. Termination by USOC. USOC 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 Orthodontic Entity, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the Orthodontic Entity, except for
the filing of a petition in involuntary bankruptcy against the Orthodontic
Entity which is dismissed within thirty (30) days thereafter, USOC may give
written notice of the immediate termination of this Agreement.
(b) In the event the Orthodontic Entity 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 ninety (90) days after written
notice thereof has been given to the Orthodontic Entity by USOC, USOC may
terminate this Agreement.
(c) In the event that the IPO has not been completed on or before
October 15, 1997, USOC may terminate this Agreement.
5.4. Actions after Termination. Upon termination of this Agreement by
either party for any reason other than a default by the Orthodontic Entity or
upon expiration of this Agreement, the Orthodontic Entity may, and upon
termination of this Agreement by USOC due to the reasons set forth in Section
5.3(b) hereof, the Orthodontic Entity shall:
(a) Purchase all improvements, additions or leasehold improvements
which have been made by USOC and which relate solely to the performance of its
obligations under this Agreement at adjusted book value;
(b) Assume all debt and all contracts, payables and leases which are
obligations of USOC and which relate solely to the performance of its
obligations under this Agreement or the properties subleased by USOC; and
(c) Purchase from USOC at book value all of the equipment of the
Center, including all replacements and additions thereto made by USOC pursuant
to the performance of its obligations under this Agreement, and all other
assets, including inventory and supplies, tangibles and intangibles (including
but not limited to accounts receivable), set forth on the balance sheet prepared
for the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect operations of the Center, depreciation,
amortization and other adjustments of assets shown on such balance sheet.
5.5. Closing of Repurchase by the Orthodontic Entity and Effective Date
of Termination. Unless another form of payment is agreed to by USOC at such
time, the Orthodontic Entity shall pay cash to USOC for (i) the assets
repurchased pursuant to Section 5.4 and (ii) an amount equal to the Service Fee
that would have been payable hereunder for services rendered to patients by the
Orthodontic Entity prior to the termination of this Agreement; provided,
however, that such cash Service Fee payment shall only be made as
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payment for such services as are actually collected by the Orthodontic Entity.
The amount of the purchase price shall be reduced by the amount of debt and
liabilities of USOC assumed by the Orthodontic Entity and shall also be reduced
by any payment USOC has failed to make under this Agreement. The Orthodontic
Entity and any Orthodontist associated with the Orthodontic Entity shall execute
such documents as may be required to assume the liabilities set forth in Section
5.4(c) and shall use its best efforts to remove USOC from any liability with
respect to such repurchased assets and with respect to any property leased or
subleased by USOC. The closing date for the repurchase shall be determined by
the Orthodontic Entity, but shall in no event occur later than 180 days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and the Orthodontic
Entity and USOC shall be released from the restrictive covenants provided for in
Section 2.9 on the closing date. 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.
5.6. Patient Records. Upon termination of this Agreement, the
Orthodontic Entity shall retain all patient medical records maintained by the
Orthodontic Entity or USOC in the name of the Orthodontic Entity. During the
term of this Agreement, and thereafter, the Orthodontic Entity or its designee
shall have reasonable access during normal business hours to the Orthodontic
Entity's and USOC's records, including, but not limited to, records of
collections, expenses and disbursements as kept by USOC in performing USOC's
obligations under this Agreement, and the Orthodontic Entity may copy any or all
such records.
VI. INDEPENDENT CONTRACTOR
6.1. Orthodontic Entity's Control Over Professional Services.
Notwithstanding the authority granted to USOC herein, USOC and the Orthodontic
Entity agree that the affiliated Orthodontist, personally or through any of his
professional employees or agents, shall have control or supervision over the
provision of all professional services, with the sole authority to direct the
professional, and ethical aspects of his orthodontic practice. USOC will have no
authority, directly or indirectly, to perform, and will not perform, any
orthodontic function. USOC may, however, advise the Orthodontic Entity as to the
relationship between its performance of orthodontic functions and the overall
administrative and business functions of its practice.
6.2. Independent Relationship. The Orthodontic Entity and USOC intend
to act and perform as independent contractors, and the provisions hereof are not
intended to create any partnership, joint venture, agency or employment
relationship between the parties. The Orthodontic Entity will not have any claim
under this Agreement, or otherwise, against USOC for vacation pay, sick leave,
unemployment insurance, worker's compensation, disability benefits or employee
benefits of any kind.
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<PAGE> 15
6.3. Other Professionals. No provision of this Agreement is intended to
limit USOC's right, authority, or ability under applicable law to contract with
other dentists or physicians, or to employ, contract with, or enter into any
partnership or joint venture with any healthcare professional; provided that the
exercise of such right, authority or ability does not contravene the terms of
this Agreement.
6.4 Patient Care. Nothing in this Agreement is intended to interfere,
or shall be construed as interfering, in any way with the Orthodontist(s)'s
ability to independently exercise professional and ethical judgment in the
performance of his patient care responsibilities.
VII. GENERAL PROVISIONS
7.1. Assignment. This Agreement shall be assignable by USOC to (i) any
person, firm or corporation that controls or is under common control with USOC,
(ii) Premier Orthodontic Group, Inc. ("Premier") or any person, firm or
corporation that controls or is under common control with Premier, or (iii) any
entity that results from a merger or other combination between Premier and USOC
("Newco") and any person, firm or corporation that controls or is under common
control with Newco. Except as set forth above, neither USOC nor the Orthodontic
Entity shall have the right to assign their respective rights and obligations
hereunder without the written consent of the other party, which consent shall
not be unreasonably withheld. Subject to this provision, this Agreement shall be
binding upon the parties hereto, and their successors and assigns.
7.2. Whole Agreement; Modification. There are no other agreements or
understandings, written or oral, between the parties regarding this Agreement,
the Exhibits and the Schedules, other than as set forth herein. This Agreement
shall not be modified or amended except by a written document executed by both
parties to this Agreement, and such written modification(s) shall be attached
hereto.
7.3. Notices. All notices required or permitted by this Agreement
shall be in writing and shall be addressed as follows:
To USOC: US Orthodontic Care, Inc.
3294 Medlock Bridge Road
Norcross, Georgia 30092
Attn: Dr. Robert N. Pickron
Telecopier: (770) 446-5511
Telephone: (770) 448-8882
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<PAGE> 16
With a copy to: Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attn: Paul A. Quiros, Esquire
To the ------------------------------
Orthodontic Entity: ------------------------------
------------------------------
Attn:
-------------------------
or to such other address as either party shall notify the other.
7.4. Waiver of Provisions. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a waiver
of any other terms and conditions hereof.
7.5. Governing Law. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the laws of
the State of _______________. The parties acknowledge that USOC 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 USOC 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
USOC shall be deemed waived and forever unenforceable and the provision of
Section 7.12 shall be applicable.
7.6. 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.
7.7. Compliance with Applicable Laws. Both parties shall comply with
all applicable federal, state and local laws, regulations and restrictions in
the conduct of their obligations under this Agreement.
7.8. Severability. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable for
any reason, the remainder of this Agreement shall be effective and binding upon
the parties.
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<PAGE> 17
7.9. Additional Documents. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by the
other party to implement or complete such party's obligations pursuant to this
Agreement.
7.10. Attorneys' Fees. If legal action is commenced by either party to
enforce or defend its rights under this Agreement, the prevailing party in such
action shall be entitled to recover its costs and reasonable attorneys' fees in
addition to any other relief granted.
7.11. Confidentiality. Neither 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 (past, present or
future) that was obtained by the other in the course of the negotiation of this
Agreement or in the course of the performance of this Agreement, without the
other party's 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.
7.12. Contract Modifications for Prospective Legal Events. In the event
any state or federal laws or regulations, 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 or regulations, the Orthodontic Entity and USOC shall amend this Agreement
as necessary. To the maximum extent possible, any such amendment shall preserve
the underlying economic and financial arrangements between the Orthodontic
Entity and USOC.
7.13. 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.
7.14. Language Construction. The language in all parts of this
Agreement shall be construed, in all cases, according to the parties' intent and
the parties hereto 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.
7.15. No Obligation to Third Parties. None of the obligations and
duties of USOC or the Orthodontic Entity under this Agreement shall in any way
or in any manner be deemed to create any obligation of USOC or of the
Orthodontic Entity to, or any rights in, any person or entity not a party to
this Agreement.
7.16. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same Agreement.
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<PAGE> 18
7.17. Singular and Plural; Gender. Where the context so requires or
permits, the use of the singular form includes the plural, and the use of the
plural form includes the singular, and the use of any gender includes any and
all genders.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ORTHODONTIC ENTITY:
-------------------------------
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
USOC:
US ORTHODONTIC CARE, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
19
<PAGE> 20
EXHIBIT 3.1
SERVICE FEE
USOC shall receive a monthly Service Fee of between 14% and 17% of
Adjusted Gross Revenue based on the profitability of the Orthodontic Entity as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Office Profit Total Total % Profit % Profit
Overhead % Margin % % to DR % to to DR to USOC
USOC
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
64% 36% 22.00% 14.00% 61.11% 38.89%
- -----------------------------------------------------------------------------------------------------------------------------------
62% 38% 23.75% 14.25% 62.50% 37.50%
- -----------------------------------------------------------------------------------------------------------------------------------
60% 40% 25.50% 14.50% 63.75% 36.25%
- -----------------------------------------------------------------------------------------------------------------------------------
58% 42% 27.25% 14.75% 64.88% 35.12%
- -----------------------------------------------------------------------------------------------------------------------------------
56% 44% 29.00% 15.00% 65.91% 34.09%
- -----------------------------------------------------------------------------------------------------------------------------------
54% 46% 30.75% 15.25% 66.85% 33.15%
- -----------------------------------------------------------------------------------------------------------------------------------
52% 48% 32.50% 15.50% 67.71% 32.29%
- -----------------------------------------------------------------------------------------------------------------------------------
50% 50% 34.25% 15.75% 68.50% 31.50%
- -----------------------------------------------------------------------------------------------------------------------------------
48% 52% 36.00% 16.00% 69.23% 30.77%
- -----------------------------------------------------------------------------------------------------------------------------------
46% 54% 37.75% 16.25% 69.91% 30.09%
- -----------------------------------------------------------------------------------------------------------------------------------
44% 56% 39.50% 16.50% 70.54% 29.46%
- -----------------------------------------------------------------------------------------------------------------------------------
42% 58% 41.25% 16.75% 71.12% 28.88%
- -----------------------------------------------------------------------------------------------------------------------------------
40% 60% 43.00% 17.00% 71.67% 28.33%
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
</TABLE>
Such Service Fee shall be adjusted annually at the beginning of each calendar
year; provided, however, that during the term of this Agreement, such Service
Fee percentage shall not be less than the initial Service Fee percentage charged
during the first year of the term of this Agreement.
Example
If the Orthodontic Entity grossed $100,000 (net of adjustments) in the first
month and the Profit Margin in 1996 was 50%, then the Service Fee for the first
month will be set at $100,000 * 15.75%, or $15,750. If during the next month,
the practice increased its Adjusted Gross Revenue to $110,000, the Service Fee
for the month would be $110,000 * 15.75%, or $17,325. All profit percentages
will be rounded up to the nearest category.
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<PAGE> 21
SCHEDULE 10.2
OrthAlliance has succeeded to the rights to agreements substantially identical
to Exhibit 10.2 as follows:
1. Service Agreement with Michael J. DeVito, D.D.S., P.A.
2. Service Agreement with Daniel J. Enger, Jr., D.D.S., P.A.
3. Service Agreement with Paul J. Giorgetti, Jr., D.D.S., P.A.
4. Service Agreement with Griffin Orthodontics, P.C.
5. Service Agreement with Hirschfield & Associates, P.A.
6. Service Agreement with Causey C. Lee, D.D.S., P.A.
7. Service Agreement with Anderson Orthodontic Associates, P.A.
8. Service Agreement with Orthodontic Affiliates, P.C.
9. Service Agreement with Arthur B. Silver, D.D.S., P.A.
10. Service Agreement with Gerald N. Smernoff of Virginia, D.D.S., P.A.
11. Service Agreement with D.B. Snead, D.M.D., P.A.
12. Service Agreement with Stewart Orthodontics, P.C.
13. Service Agreement with Mark D. Thebaut, D.D.S., P.C.
14. Service Agreement with Baron V. Whateley, D.D.S., M.S., P.C.
15. Service Agreement with C.A. Williams, D.M.D., P.A.
16. Service Agreement with Mark A. Yaffey Orthodontic Group, P.A.
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED
FORM OF
CONSULTING AND BUSINESS SERVICES AGREEMENT
THIS CONSULTING AND BUSINESS SERVICES AGREEMENT (this
"Agreement"), dated as of ________________, 1997, by and between PREMIER
ORTHODONTIC GROUP, INC., a Delaware corporation, and its successor or assigns
("Premier") and __________________________________, a California
________________________ (the "Orthodontic Entity").
WITNESSETH:
WHEREAS, the Orthodontic Entity owns and operates an
orthodontic practice with offices located in the facilities identified in
Exhibit 1.2 (the "Center(s)") and furnishes orthodontic and other dental care to
the general public through the services of the orthodontist(s) and dentist(s)
affiliated with the Orthodontic Entity to provide patient care at the Center(s)
(the "Orthodontist(s)"); and
WHEREAS, Premier is a company which has been formed to provide
business and consulting services to orthodontists; and
WHEREAS, the Orthodontic Entity and Premier mutually desire to
enter into this Consulting and Business Services Agreement.
NOW THEREFORE, in consideration of Ten Dollars ($10.00), the
mutual covenants and agreements herein contained, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I. RESPONSIBILITIES OF PREMIER
1.1 General. Premier shall furnish the Orthodontic Entity the
business and consulting services described in this Agreement, subject to the
requirements of the California Dental Practice Act relating to, without
limitations, the control by dentists over the practice of dentistry.
1.2 Facilities and Equipment. Premier will consult with and
advise the Orthodontic Entity on its equipment and office needs and the
efficient configuration of its office space and will arrange for all equipment
and furnishings determined by the Orthodontic Entity to be necessary for the
operation of the Center, as specified on Exhibit 1.2 (together with any future
asset purchases in accordance herewith, the "Assets"). The Orthodontic Entity
shall have complete custody and control over the Assets provided to the
Orthodontic Entity by Premier, including, without limitation, the right to make
decisions, after consultation with Premier, with respect to the repair,
replacement, modification and upkeep of such Assets. Unless the Orthodontic
Entity chooses to directly purchase furnishings, equipment and related assets in
the future, Premier shall purchase such assets
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<PAGE> 2
and lease such assets to the Orthodontic Entity under a capital leasing
arrangement with such terms as mutually agreed to by the Orthodontic Entity and
Premier. If the Orthodontic Entity chooses to purchase such assets, then it
shall depreciate such assets in accordance with generally accepted accounting
principles ("GAAP").
1.3 Personnel and Payroll. Premier will consult with the
Orthodontic Entity on its staffing needs. Premier will employ the staff
determined by the Orthodontic Entity to be necessary for the Center's
operations, as specified on Exhibit 1.3, except for the Orthodontists and
orthodontic and hygienist staff, who will be employed by the Orthodontic Entity.
At the election of the Orthodontic Entity, Premier will additionally assist in
staff scheduling, administer the Center's payroll and provide payroll accounting
services. The parties expressly agree that the Orthodontic Entity will have
discretion and control over all personnel and staffing matters in respect to the
Center's staff.
1.4 Business Systems, Procedures and Forms. Premier will
advise the Orthodontic Entity on and assist in the implementation and operation
of business systems and procedures. Premier will provide training to the
Center's staff in the use of such systems and procedures. Premier will
additionally provide the Orthodontic Entity clinical forms developed in
consultation with the Orthodontic Entity and will provide training to the
Center's staff in the use of such forms. The Orthodontic Entity expressly
acknowledges and agrees that it shall have no property rights in the foregoing
systems, procedures or clinical forms, and further agrees that such systems,
procedures and form shall be deemed to constitute Confidential Information
within the meaning of Section 2.8 hereof and shall be subject to the
restrictions on the use, appropriation and reproduction of such Confidential
Information provided for in Section 2.8. The parties agree that the Orthodontic
Entity's use of any such systems, procedures and forms shall be at the
Orthodontic Entity's sole discretion and, notwithstanding its use of any such
systems, procedures, or forms, the Orthodontic Entity shall retain control over
the management of all aspects of the Center's operations, including, without
limitation, patient scheduling.
1.5 Purchasing and Inventory Control. Premier in consultation
with the Orthodontic Entity, will provide the Orthodontic Entity purchasing
services for inventory and supplies and will be responsible for maintaining the
Center's inventory. The price charged to the Center for such inventory and
supplies shall be the same as the price paid by Premier, including any rebates.
In any event, the Orthodontic Entity has the right to purchase its supplies from
the supplier of its choice.
1.6 Accounting Services and Financial Reporting. Premier will
advise the Orthodontic Entity with respect to and provide or arrange for all
accounting and bookkeeping services reasonably required for the Center's normal
and routine operations. Premier will additionally advise the Orthodontic Entity
on and assist in implementing information systems designed in consultation with
the Orthodontic Entity to generate financial and operational data concerning the
Center. Premier will prepare and submit to the Orthodontic Entity monthly
operating data and quarterly financial reports with respect to the Center's
operations. Premier will analyze such data on an ongoing basis to advise the
Center on improving productivity.
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<PAGE> 3
1.7 Legal Services. Premier shall arrange for all legal
services reasonably required by the Center, excluding the costs of malpractice
litigation which shall be the sole responsibility of the Orthodontist. Premier
shall use reasonable efforts to obtain under its blanket policies for the
Orthodontist as a Center Expense malpractice insurance that meets the coverage
requirements set forth in Section 4.1 hereof.
1.8 Marketing. Premier will advise the Orthodontic Entity in
designing and assist in executing a marketing plan to promote the Center's
professional services. In connection with the development of the marketing plan,
Premier will advise the Orthodontic Entity on establishing an installment plan
for patient payments, and, in the event the Orthodontic Entity elects to offer
such a plan, will assist in implementing and administering the plan. The
Orthodontic Entity shall exercise sole discretion and control over all policies
and decisions relating to marketing, pricing, credits, refunds, warranties and
advertising. All marketing activities hereunder will be conducted in compliance
with applicable laws and regulations of the State of California governing the
dental profession.
1.9 Planning. Premier will assess the business potential of
establishing orthodontic offices in new locations, and, in the event the
Orthodontic Entity elects to relocate or open an office in a new location,
subject to mutual agreement, Premier will provide assistance to the Orthodontic
Entity as appropriate.
1.10 Billing and Collections. Premier shall provide billing
and collection services for all professional services rendered at the Center,
all such billing and collections to be done in the name of and subject to the
control of the Orthodontic Entity.
1.11 Payment Services. On a continuous basis, the accounts
receivable of the Orthodontic Entity shall be deposited with Premier for the
Orthodontic Entity's account, and Premier shall use the funds collected from
such accounts receivable to pay the Consulting Fee (as hereinafter defined) and
to pay, on the Orthodontic Entity's behalf as a Center Expense (as hereinafter
defined) and otherwise, all expenses of the Orthodontic Entity duly authorized
for payment by the Orthodontic Entity and shall return to the Orthodontic Entity
any funds remaining after payment in full of such items.
1.12 Disbursement of Funds. (a) All monies collected by
Premier from the Orthodontic Entity's accounts receivable pursuant to Section
1.10 above shall be deposited into an account (the "Orthodontic Entity Account")
with a bank whose deposits are insured with the Federal Deposit Insurance
Corporation. The Orthodontic Entity Account shall contain the name of the
Orthodontic Entity, but Premier shall make all disbursements therefrom. Premier
shall account for all monies so disbursed from the Orthodontic Entity Account.
From the funds collected and deposited each month by Premier in the Orthodontic
Entity Account, Premier shall make the following disbursements, among others,
promptly when payable.
(i) Compensation payable to all employees of the
Orthodontic Entity, and all taxes and assessments payable to
local, state and Federal governments in connection with the
employment of such personnel; and
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<PAGE> 4
(ii) All other sums otherwise due and payable by the
Orthodontic Entity as Center Expenses or otherwise, including,
without limitation, the Consulting Fee.
(b) In the event the funds in the Orthodontic Entity Account
will, at any time, be insufficient to cover current expenses, Premier shall
notify the Orthodontic Entity and Premier shall advance to the Orthodontic
Entity the necessary funds to pay current expenses for the benefit of the
Orthodontic Entity, which advances will be deemed to be loans to the Orthodontic
Entity to be repaid upon such terms as agreed to by the Orthodontic Entity and
Premier, which indebtedness shall be deemed a Center Expense for purposes of
Article III hereof; provided, however, that in any event the outstanding
principal amount of such indebtedness shall bear interest at an annual rate
adjusted on the first calendar day of each month to reflect that certain rate
from time to time published by the Wall Street Journal as the prime rate, as of
the last business day of the immediately preceding month for which such prime
rate was published (the "Prime Rate"), plus one percent (1%).
1.13 Records. Premier shall organize and develop systems in
consultation with the Orthodontic Entity with respect to all files and records
relating to the business operations of the Center, including, but not limited
to, accounting, billing and collection records. The parties expressly
acknowledge and agree that patient records shall at all times be and remain the
property and under the control of the Orthodontist and shall be located at the
Orthodontic Entity's facilities so that they are readily accessible for patient
care. The management of all files and records shall comply with applicable state
and federal statutes. Premier shall use its reasonable efforts to preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purpose necessary to perform the services set forth
herein; provided, however, in no event shall a breach of said confidentiality be
deemed a default under this Agreement.
II. OBLIGATIONS OF THE ORTHODONTIC ENTITY
2.1 General. The Orthodontic Entity will be responsible for
the management of the Center, in accordance with the requirements of the
California Dental Practice Act.
2.2 Employment of Orthodontists and Rendering of Patient Care.
The Orthodontic Entity will be responsible for the employment of all
Orthodontist(s) and hygienists affiliated with the Orthodontic Entity and
supervision of all care and services rendered to patients.
2.3 Professional Services. The Orthodontic Entity shall use
and occupy the offices and facilities designated on Exhibit 1.2 exclusively for
the practice of orthodontic and general dentistry services and shall comply with
all applicable local rules, ordinances and all standards of dental and
orthodontic care. It is expressly acknowledged by the parties that the
orthodontic practice conducted at the Center shall be conducted solely by the
Orthodontists associated with the Orthodontic Entity except those additional
orthodontists employed by the
4
<PAGE> 5
general dentists' offices from which the Orthodontic Entity rents only space,
and no other orthodontist shall be permitted to use or occupy the Center or
Centers, except as provided in Exhibit 2.3. The Orthodontic Entity shall provide
professional services to patients hereunder in compliance at all times with
ethical standards and laws and regulations applying to the dental profession.
The Orthodontic Entity shall ensure that each Orthodontist providing orthodontic
or dental services to patients is licensed by the state in which the Center is
located. In the event that any disciplinary, medical malpractice or other
actions are initiated against any such Orthodontist, the Orthodontic Entity
shall immediately inform Premier of such action and the underlying facts and
circumstances. The Orthodontic Entity agrees to cooperate with and participate
in the quality assurance/utilization review programs established by Premier or
mandated by accreditation and/or licensure standards applicable to the practice
of orthodontics and dentistry. Deficiencies discovered in the performance of any
personnel or in the quality of professional services shall be reported
immediately to Premier, and appropriate steps shall be taken by the Orthodontic
Entity at once to remedy such deficiencies. Any termination of an Orthodontist
other than for cause (as such term is defined in the Employment Agreement
between the Orthodontic Entity and the Orthodontist) must be approved by a
majority of the Board of Advisors of Premier.
2.4 Records. The Orthodontic Entity will keep or cause to be
kept accurate, complete and timely medical and other records of all patients.
Such records shall be sufficient to enable Premier, on behalf of the Orthodontic
Entity, to obtain payment for the services and facilities and to facilitate the
delivery of quality patient care by the Orthodontist.
2.5 Professional Expenses. Payments expended each fiscal year
by the Orthodontic Entity on behalf of the Orthodontist and other orthodontists
or dentists delivering patient care at the Center(s) for continuing education,
seminars, professional license fees and dues, professional memberships, expenses
related to a company automobile for the Orthodontist, and all other expenses of
the Orthodontist and other orthodontists and dentists delivering patient care at
the Center(s) that do not directly benefit the Orthodontic Entity (as reasonably
determined by Premier), up to the amount of three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue, shall be considered a Center
Expense. To the extent that such expenses exceed three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue for such year, the Center Expenses
shall be reduced by such excess amount solely for the purpose of calculating the
Consulting Fee; provided, however, that the Orthodontic Entity shall pay such
excess expenses. Notwithstanding the foregoing, the Orthodontic Entity 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 the Orthodontist. The Orthodontic Entity
shall ensure that the Orthodontist participates in such continuing education as
is necessary for such Orthodontist to remain current.
2.6 Professional Insurance Eligibility. The Orthodontic Entity
shall cooperate in the obtaining and retaining of professional liability
insurance by assuring that each of its Orthodontists is insurable and
participating in an on-going risk management program.
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<PAGE> 6
2.7 Employment Agreement. The parties recognize that the
services to be provided by Premier are feasible only if the Orthodontic Entity
operates an active orthodontic practice to which it and each orthodontist
associated with the Orthodontic Entity devote their full time and attention.
Simultaneously with the execution of this Agreement, each Orthodontist who is or
becomes an equity owner of the Orthodontic Entity or delivers patient care at
the Center(s) on average more than ten (10) days each month, whether on the date
hereof or at any time during the term of this Agreement, shall enter into an
employment agreement with the Orthodontic Entity in substantially the form of
that certain Employment Agreement dated of even date herewith by and between the
Orthodontic Entity and the principal Orthodontist(s) of the Orthodontic Entity.
2.8 Confidentiality. The Orthodontic Entity agrees and
acknowledges that all materials provided by Premier or a Premier Affiliate (as
hereinafter defined) to the Orthodontic Entity, including all trade secrets,
constitute "Confidential Information" and are disclosed in confidence and with
the understanding that it constitutes valuable business information developed by
Premier at great expenditures of time, effort, and money. Trade secrets are
property rights protected by law and, for purposes of this letter, shall have
the meaning provided under applicable California law. The Orthodontic Entity
further agrees that it shall not, directly or indirectly, without the express
prior written consent of Premier, use or disclose such Confidential information
for any purpose other than in connection with the services to be rendered
hereunder. The Orthodontic Entity further agrees: (i) to keep strictly
confidential and hold in trust all Confidential Information and not disclose
such Confidential Information to any third party without the express prior
written consent of Premier; and (ii) to impose this obligation of
confidentiality on its affiliates, co-owners, associates, partners, employees,
shareholders, members and independent contractors. The Orthodontic Entity
acknowledges that the disclosure of Confidential Information to it by Premier 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 Orthodontic Entity shall immediately return and shall cause its
affiliates, co-owners, associates, partners, employees, shareholders, members
and independent contractors to immediately return to Premier all Confidential
Information (only to the extent such Confidential Information does not include
patient information), and the Orthodontic Entity will not, and will cause its
affiliates, co-owners, associates, partners, employees, shareholders, members
and independent contractors not to, thereafter use, appropriate, or reproduce
such Confidential Information. The Orthodontic Entity 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 Premier, 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, Premier, in
addition to any other remedies which may be available to it, shall be entitled
to injunctive or other equitable relief. As used in this Agreement, the term
"Premier Affiliate" shall mean (i) each corporation or other business entity
directly or indirectly controlling, controlled by, or under common control with
Premier and (ii) each orthodontic or dental practice to which Premier provides
management or consulting services, the employees and principals of such
practices, and each corporation or other business entity
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<PAGE> 7
directly or indirectly controlling, controlled by, or under common control with
each such practice or the principals thereof.
2.9 Covenant Not to Compete. During the term of this
Agreement, the Orthodontic Entity, and any of its members or shareholders,
agrees not to establish, develop or open any offices for the provision of
orthodontic services within a ten (10) mile radius of any of the Centers covered
by this Agreement (the "Area of Dominant Influence") without the express written
consent of Premier. For a period of two (2) years following the termination of
this Agreement, the Orthodontic Entity and any of its members or shareholders
shall be prohibited within the Area of Dominant Influence (i) from advertising
in print (except for yellow page advertising and announcements for the opening
of a practice) or electronic media of any kind, (ii) from soliciting in any
manner patients, orthodontists or staff associated with the Centers, and (iii)
from soliciting any referrals from any dentist who referred one or more patients
to the Center within the three (3) years prior to the date of such termination.
In the event the Orthodontic Entity terminates this Agreement pursuant to
Section 5.2(b), then this Section 2.9 shall be void and of no further effect;
provided, however, the remainder of this Agreement shall remain in full force
and effect.
III. FINANCIAL ARRANGEMENTS
3.1 Consulting Fees. Premier shall receive a Consulting Fee,
subject to the provisions of Section 3.3 below, of between 14% and 17% of the
Adjusted Gross Revenue as determined pursuant to Exhibit 3.1 attached hereto and
incorporated herein by reference. Except as otherwise provided, the amounts to
be paid to Premier under this Section 3.1 shall be payable monthly. The amounts
shall be estimated based upon the previous month's operating results of the
Center. Adjustments to the estimated payments shall be made to reconcile actual
amounts due under this Section 3.1, by the end of the following month. Upon
preparation of quarterly financial statements, final adjustments to the
Consulting Fee for the quarter shall be made and any additional amounts owing to
Premier or the Orthodontic Entity shall then be made. Any audit adjustments
shall be reflected in the calculations for the fourth quarter.
3.2 Center Expenses. Premier shall be responsible for the
payment of all Center Expenses, as defined below, during the term of this
Agreement and the Orthodontic Entity shall immediately reimburse Premier for
such payments from funds held in the Orthodontic Entity Account.
3.3 Definitions. For the purposes of this Agreement, the
following definitions shall apply and shall comply with generally accepted
accounting principles:
(a) "Adjusted Gross Revenue" shall mean Gross Revenue
of the Center less any Adjustments, based on the accrual
method of accounting.
(b) "Adjustments" shall mean any adjustments to Gross
Revenue for uncollectible accounts, professional courtesies
and other activities, contractual allowances and discounts
that do not generate a collectible fee.
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<PAGE> 8
(c) "Center Expenses" shall mean all operating and
non-operating expenses incurred in the operation of the
Center, including, without limitation:
(i) Salaries, benefits, payroll taxes,
workers compensation, health insurance, 401(k) and
other benefit plans, and other direct costs of all
employees of Premier at the Center, including dental
assistants (but excluding all Orthodontists);
provided that only expenses for health insurance,
401(k) and other benefit plans approved by the
Orthodontic Entity shall be included;
(ii) Direct costs of all employees or
consultants of Premier who, upon mutual agreement of
Premier and the Orthodontic Entity, provide services
at or, if consented to by the Orthodontic Entity, in
connection with the Center required for improved
clinic performance, such as work management,
materials management, purchasing, charge and coding
analysis, and business office consultation;
(iii) Obligations of Premier under leases or
subleases entered into in connection with the
operation of the Center;
(iv) Personal property and intangible taxes
assessed against Premier's assets used in connection
with the operation of the Center, commencing on the
date of this Agreement;
(v) Malpractice insurance expenses and
Orthodontist recruitment expenses as agreed to by
Premier and the Orthodontic Entity;
(vi) Property, casualty and liability
insurance for the Center and its operations;
(vii) In the event an opportunity arises for
additional Orthodontists in the Area of Dominant
Influence to become employed by or merge with the
Orthodontic Entity, actual out-of-pocket expenses of
Premier personnel working on a specified merger,
whether or not such merger is completed if such
merger is approved or requested by the Orthodontic
Entity;
(viii) Amortization of intangible asset value as
a result of each such acquisition referred to in
subsection (vii) above;
(ix) Depreciation of all assets used by the
Orthodontic Entity in the operation of the Center;
(x) Repayment of interest on any funds loaned
to the Orthodontic Entity by Premier in connection
with the operation of the
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<PAGE> 9
Center, at an interest rate not in excess of the
Prime Rate plus one percent (1%);
(xi) Advertising and other marketing expenses
attributable to the promotion of the Center and/or
its Orthodontist(s); and
(xii) Other expenses incurred by Premier
with the consent of the Orthodontic Entity in
carrying out its obligations under this Agreement for
the benefit of the Center or the Orthodontic Entity;
provided, however, that such expenses shall not
include Premier's home office overhead expenses.
"Center Expenses" shall not include:
(i) Any federal or state income taxes; or
(ii) Any personal expenses of the Orthodontist
as permitted in the first sentence of Section 3(b) of
that certain employment agreement(s) by and between
the Orthodontist(s) and the Orthodontic Entity, in
excess of three percent (3%) of the Orthodontic
Entity's Adjusted Gross Revenue.
(d) "Contract" shall mean the agreement entered into
by patients with the Orthodontic Entity for the provision of
orthodontic services at a predetermined fee for an estimated
period of treatment.
(e) "Gross Revenue" shall mean all fees and charges
recorded or booked each month by or on behalf of the
Orthodontic Entity as a result of professional orthodontic or
other dental services personally furnished to patients by the
Orthodontist and those under the Orthodontist's supervision
and other fees or income generated in their capacity as a
professional prior to any Adjustments.
3.4 Additional Facilities. In the event the parties
agree to add an additional facility in which the Orthodontic Entity will provide
services, the consulting fees payable to Premier shall be determined by
aggregating the results of the operations of each additional facility with the
results of the operations of the existing Center or Centers and such fees
payable to Premier shall be calculated pursuant to the provisions of Section
3.1. All other provisions of this Article III shall apply to any additional
facilities. As part of its strategic growth strategy, Premier plans to provide
capital support or arrange favorable funding for orthodontic practice expansion
and development. Any expenditures on practice growth, acquisition or development
shall be subject to approval by Premier's Board of Directors.
IV. INSURANCE AND INDEMNITY
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<PAGE> 10
4.1 Insurance to be Maintained by the Orthodontic Entity.
Throughout the term of this Agreement, the Orthodontic Entity shall maintain
comprehensive professional liability insurance with limits of not less than
$500,000 per claim and with aggregate policy limits of not less than $1,000,000
per Orthodontist providing services at the Center and a separate limit for the
Orthodontic Entity or such other amounts required by the applicable state laws,
regulations, rules or directives. The Orthodontic Entity shall be responsible
for all such liabilities in excess of the limits of such policies. Premier
agrees to negotiate for and cause premiums to be paid with respect to such
insurance. Premiums and deductibles with respect to such policies shall be a
Center Expense.
4.2 Insurance to be Maintained by Premier. Throughout the term
of this Agreement, Premier will use reasonable efforts to provide and maintain,
as a Center Expense, comprehensive general liability and property insurance
covering the Center premises and operations.
4.3 Tail Insurance Coverage. The Orthodontic Entity will cause
each individual Orthodontist providing services at the Center to enter into an
agreement with the Orthodontic Entity that upon termination of such Orthodontic
Entity's relationship with the Orthodontist, for any reason, tail insurance
coverage for a period of three (3) years will be purchased by each Orthodontist.
Such provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by the Orthodontic Entity and the
individual Orthodontists, and the Orthodontic Entity hereby covenants with
Premier to enforce such provisions relating to the tail insurance coverage or to
provide such coverage at the expense of the Orthodontic Entity.
4.4 Additional Insureds. The Orthodontic Entity shall have
Premier named as an additional insured on the Orthodontic Entity's professional
liability insurance programs.
4.5 Indemnification. The Orthodontic Entity shall indemnify,
hold harmless and defend Premier, its officers, directors, shareholders, members
and employees, from and against any and all liabilities, losses, damages,
claims, causes of action, and expenses (including reasonable attorneys' fees),
whether or not covered by insurance, caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of medical, dental
or orthodontic services or the performance of any intentional acts, negligent
acts or omissions by the Orthodontic Entity and/or its affiliates, shareholders,
members, agents, employees and/or subcontractors (other than Premier) prior to
and after the date of this Agreement and throughout the term hereof. Premier
shall indemnify, hold harmless and defend the Orthodontic Entity, and its
directors, shareholders, members and employees, from and against any and all
liabilities, losses, damages, claims, 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 Premier, a Premier Affiliate and/or their
members, shareholders, agents, employees and/or subcontractors (other than the
Orthodontic Entity) during the term of this Agreement.
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<PAGE> 11
V. TERM AND TERMINATION
5.1 Term of Agreement. This Agreement shall commence on the
date the Securities and Exchange Commission declares effective Premier's
registration Statement on Form S-1 for the sale of Premier's common stock or
membership interests in an initial public offering (the "IPO") and shall expire
on the twentieth (20th) anniversary thereof unless earlier terminated pursuant
to the terms hereof. In the event that Premier does not complete the IPO on or
before October 15, 1997, this Agreement shall be null and void and of no further
effect between the parties hereto.
5.2 Termination by the Orthodontic Entity. The Orthodontic
Entity 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 Premier, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by Premier, except for the filing of a
petition in involuntary bankruptcy against Premier which is dismissed within
thirty (30) days thereafter, the Orthodontic Entity may give written notice of
the immediate termination of this Agreement.
(b) In the event Premier 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 ninety (90) days after written notice
thereof has been given to Premier by the Orthodontic Entity (which notice shall
contain specific details of the reason for such default), the Orthodontic Entity
may terminate this Agreement; provided, however, if the nature of such default
is such that cure is not capable within said 90-day period, then Premier shall
have such additional time as may be required to effect and complete such cure
provided that Premier shall commence such cure within the aforesaid 90-day
period and shall prosecute such cure to completion with reasonable diligence.
(c) In the event that the IPO has not been completed on or
before October 15, 1997, the Orthodontic Entity may terminate this Agreement.
(d) In the event that a "Change in Control" (as herein
defined) occurs with respect to Premier, the Orthodontic Entity may, within 10
days after the expiration of the Approval Period (as herein defined), terminate
this Agreement by providing five (5) days prior written notice to Premier. For
purposes of this Section, "Change in Control" means an acquisition or
aggregation of any voting securities of Premier by a "person" (as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) immediately
after which such person is or becomes the beneficial owner, directly or
indirectly, of 15% or more of the combined voting power of Premier's then
outstanding voting securities; provided, however, that no acquisition or
aggregation of Premier's voting securities shall be deemed a "Change in Control"
if such acquisition or aggregation (i) has the prior approval of Premier's board
of directors, or (ii) is approved by Premier's board of directors within 60 days
after Premier receives notice of such acquisition or aggregation (the "Approval
Period").
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<PAGE> 12
5.3 Termination by Premier. Premier 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 Orthodontic
Entity, or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the Orthodontic
Entity, except for the filing of an involuntary petition in bankruptcy against
the Orthodontic Entity which is dismissed within thirty (30) days thereafter,
Premier may give written notice of the immediate termination of this Agreement.
(b) In the event the Orthodontic Entity 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 ninety (90) days
after written notice thereof has been given to the Orthodontic Entity by
Premier, Premier may terminate this Agreement.
(c) In the event that the IPO has not been completed on or
before October 15, 1997, Premier may terminate this Agreement.
5.4 Actions after Termination. Upon termination of this
Agreement by either party for any reason other than a default by the Orthodontic
Entity or upon expiration of this Agreement, the Orthodontic Entity may, and
upon termination of this Agreement by Premier due to the reasons set forth in
Section 5.3(b) hereof, the Orthodontic Entity shall:
(a) Purchase all improvements, additions or leasehold
improvements which have been made by Premier and which relate solely to the
performance of its obligations under this Agreement at adjusted book value;
(b) Assume all debt and all contracts, payables and leases
which are obligations of Premier and which relate solely to the performance of
its obligations under this Agreement or the properties subleased by Premier; and
(c) Purchase from Premier at book value all of the equipment
of the Center, including all replacements and additions thereto made by Premier
pursuant to the performance of its obligations under this Agreement, and all
other assets, including inventory and supplies, tangibles and intangibles
(including but not limited to accounts receivable), set forth on the balance
sheet prepared for the month most recently ended prior to the date of such
termination in accordance with GAAP to reflect operations of the Center,
depreciation, amortization and other adjustments of assets shown on such balance
sheet.
5.5 Closing of Repurchase by the Orthodontic Entity and
Effective Date of Termination. Unless another form of payment is agreed to by
Premier at such time, the Orthodontic Entity shall pay cash to Premier for (i)
the assets repurchased pursuant to Section 5.4 and (ii) an amount equal to the
Consulting Fee that would have been payable hereunder for services rendered to
patients by the Orthodontic Entity prior to the termination of this Agreement;
provided, however, that such Consulting Fee payment shall only be made as
payment for such services as are actually collected by the Orthodontic Entity.
The amount
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<PAGE> 13
of the purchase price shall be reduced by the amount of debt and liabilities of
Premier assumed by the Orthodontic Entity and shall also be reduced by any
payment Premier has failed to make under this Agreement. The Orthodontic Entity
and any Orthodontist associated with the Orthodontic Entity shall execute such
documents as may be required to assume the liabilities set forth in Section
5.4(c) and shall use its best efforts to remove Premier from any liability with
respect to such repurchased assets and with respect to any property leased or
subleased by Premier. The closing date for the repurchase shall be determined by
the Orthodontic Entity, but shall in no event occur later than 180 days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and the Orthodontic
Entity and Premier shall be released from the restrictive covenants provided for
in Section 2.9 on the closing date. 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.
5.6 Patient Records. Upon termination of this Agreement, the
Orthodontic Entity shall retain all patient medical records maintained by the
Orthodontic Entity or Premier in the name of the Orthodontic Entity. During the
term of this Agreement, and thereafter, the Orthodontic Entity or its designee
shall have reasonable access during normal business hours to the Orthodontic
Entity's and Premier's records, including, but not limited to, records of
collections, expenses and disbursements as kept by Premier in performing
Premier's obligations under this Agreement, and the Orthodontic Entity may copy
any or all such records.
VI. INDEPENDENT CONTRACTOR
6.1 Orthodontic Entity's Control Over the Orthodontic
Practice. Notwithstanding the authority granted to Premier herein, Premier and
the Orthodontic Entity agree that the affiliated Orthodontist, personally or
through any of his professional employees or agents, shall have complete control
and supervision over the business aspects of the Orthodontic Entity'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 Orthodontist(s). The
Orthodontist(s) shall have sole authority to direct the business, professional,
and ethical aspects of the orthodontic practice. Premier will have no authority,
directly or indirectly, to perform, and will not perform, any orthodontic
function, or to influence or otherwise interfere with the exercise of the
Orthodontist(s) professional judgment. Premier may, however, advise the
Orthodontic Entity as to the relationship between its performance of orthodontic
functions and the overall administrative and business functions of its practice.
6.2 Independent Relationship. The Orthodontic Entity and
Premier intend to act and perform as independent contractors, and the provisions
hereof are not intended to create any partnership, joint venture, agency or
employment relationship between the parties. The Orthodontic Entity will not
have any claim under this Agreement, or otherwise, against
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<PAGE> 14
Premier for vacation pay, sick leave, unemployment insurance, worker's
compensation, disability benefits or employee benefits of any kind.
6.3 Other Professionals. No provision of this Agreement is
intended to limit Premier's right, authority, or ability under applicable law to
contract with other dentists or physicians, or to employ, contract with, or
enter into any partnership or joint venture with any healthcare professional,
provided that the exercise of such right, authority or ability does not
contravene the terms of this Agreement.
6.4 Patient Care. Nothing in this Agreement is intended to
interfere, or shall be construed as interfering, in any way with the
Orthodontist(s)'s ability to independently exercise professional and ethical
judgment in the performance of his patient care responsibilities.
VII. GENERAL PROVISIONS
7.1 Assignment. This Agreement shall be assignable by Premier
to (i) any person, firm or corporation that controls or is under common control
with Premier, (ii) US Orthodontic Care, Inc. ("USOC") or any person, firm or
corporation that controls or is under common control with USOC, or (iii) any
entity that results from a merger or other combination between Premier and USOC
("Newco") and any person, firm or corporation that controls or is under common
control with Newco. Except as set forth above, neither Premier nor the
Orthodontic Entity shall have the right to assign their respective rights and
obligations hereunder without the written consent of the other party, which
consent shall not be unreasonably withheld. Subject to this provision, this
Agreement shall be binding upon the parties hereto, and their successors and
assigns.
7.2 Whole Agreement; Modification. There are no other
agreements or understandings, written or oral, between the parties regarding
this Agreement, the Exhibits and the Schedules, other than as set forth herein.
This Agreement shall not be modified or amended except by a written document
executed by both parties to this Agreement, and such written modification(s)
shall be attached hereto.
7.3 Notices. All notices required or permitted by this
Agreement shall be in writing and shall be addressed as follows:
To Premier: Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard, Suite 200
Torrance, California 90505
Attn: Mr. Sam Westover, Chief Executive Officer
Telecopier: (310) 791-5660
Telephone: (310) 791-5657
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<PAGE> 15
With a copy to: Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attn: Paul A. Quiros, Esquire
To the
---------------------------------------------
Orthodontic Entity:
or to such other address as either party shall notify the other.
7.4 Waiver of Provisions. Any waiver of any terms and
conditions hereof must be in writing, and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
7.5 Governing Law. The validity, interpretation and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of California. The parties acknowledge that Premier
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 Premier 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
Premier shall be deemed waived and forever unenforceable and the provision of
Section 7.12 shall be applicable.
7.6 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.
7.7 Compliance with Applicable Laws. Both parties shall comply
with all applicable federal, state and local laws, regulations and restrictions
in the conduct of their obligations under this Agreement.
7.8 Severability. In the event that any provision of this
Agreement or the application thereof to any of the parties hereto or any
circumstance in any jurisdiction governing this Agreement shall, to any extent,
be invalid or unenforceable under any applicable statute, regulation or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict herewith and shall be deemed modified to conform to such statute,
regulation or rule of law, and the remainder of this Agreement and the
application of any such invalid or unenforceable provision to parties,
jurisdictions or circumstances other
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<PAGE> 16
than to whom or to which it is held invalid or unenforceable shall not be
affected thereby nor shall the same affect the validity or enforceability of any
other provision of this Agreement.
7.9 Additional Documents. Each of the parties hereto agrees
to execute any document or documents that may be requested from time to time by
the other party to implement or complete such party's obligations pursuant to
this Agreement.
7.10 Attorneys' Fees. If legal action is commenced by either
party to enforce or defend its rights under this Agreement, the prevailing party
in such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
7.11 Confidentiality. Neither 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 (past, present or
future) that was obtained by the other in the course of the negotiation of this
Agreement or in the course of the performance of this Agreement, without the
other party's 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.
7.12 Contract Modifications for Prospective Legal Events. In
the event any state or federal laws or regulations, 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 or regulations, the Orthodontic Entity and Premier shall amend this
Agreement as necessary. To the maximum extent possible, any such amendment shall
preserve the underlying economic and financial arrangements between the
Orthodontic Entity and Premier.
7.13 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.
7.14 Language Construction. The language in all parts of this
Agreement shall be construed, in all cases, according to the parties' intent and
the parties hereto 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.
7.15 No Obligation to Third Parties. None of the obligations
and duties of Premier or the Orthodontic Entity under this Agreement shall in
any way or in any manner be deemed to create any obligation of Premier or of the
Orthodontic Entity to, or any rights in, any person or entity not a party to
this Agreement.
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<PAGE> 17
7.16 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same Agreement.
7.17 Singular and Plural; Gender. Where the context so
requires or permits, the use of the singular form includes the plural, and the
use of the plural form includes the singular, and the use of any gender includes
any and all genders.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
ORTHODONTIC ENTITY:
------------------------------------
By:
Name
Title:
PREMIER:
PREMIER ORTHODONTIC GROUP, INC.
By:
Name:
Title:
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<PAGE> 18
EXHIBIT 10.3
CONSULTING FEE
Premier shall receive a monthly Consulting Fee of between 14%
and 17% of Adjusted Gross Revenue based on the profitability of the Orthodontic
Entity as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Office Profit Total Total % Profit % Profit
Overhead % Margin % % to DR % to to DR to Premier
Premier
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
64% 36% 22.00% 14.00% 61.11% 38.89%
- -----------------------------------------------------------------------------------------------------------------------------------
62% 38% 23.75% 14.25% 62.50% 37.50%
- -----------------------------------------------------------------------------------------------------------------------------------
60% 40% 25.50% 14.50% 63.75% 36.25%
- -----------------------------------------------------------------------------------------------------------------------------------
58% 42% 27.25% 14.75% 64.88% 35.12%
- -----------------------------------------------------------------------------------------------------------------------------------
56% 44% 29.00% 15.00% 65.91% 34.09%
- -----------------------------------------------------------------------------------------------------------------------------------
54% 46% 30.75% 15.25% 66.85% 33.15%
- -----------------------------------------------------------------------------------------------------------------------------------
52% 48% 32.50% 15.50% 67.71% 32.29%
- -----------------------------------------------------------------------------------------------------------------------------------
50% 50% 34.25% 15.75% 68.50% 31.50%
- -----------------------------------------------------------------------------------------------------------------------------------
48% 52% 36.00% 16.00% 69.23% 30.77%
- -----------------------------------------------------------------------------------------------------------------------------------
46% 54% 37.75% 16.25% 69.91% 30.09%
- -----------------------------------------------------------------------------------------------------------------------------------
44% 56% 39.50% 16.50% 70.54% 29.46%
- -----------------------------------------------------------------------------------------------------------------------------------
42% 58% 41.25% 16.75% 71.12% 28.88%
- -----------------------------------------------------------------------------------------------------------------------------------
40% 60% 43.00% 17.00% 71.67% 28.33%
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
</TABLE>
Such Consulting Fee shall be adjusted annually at the beginning of each calendar
year; provided, however, that during the term of this Agreement, such Consulting
Fee percentage shall not be less than the initial Consulting Fee percentage
charged during the first year of the term of this Agreement.
Example
If the Orthodontic Entity grossed $100,000 (net of adjustments) in the first
month and the Profit Margin in 1996 was 50%, then the Consulting Fee for the
first month will be set at $100,000 * 15.75%, or $15,750. If during the next
month, the practice increased its Adjusted Gross Revenue to $110,000, the
Consulting Fee for the month would be $110,000 * 15.75%, or $17,325. All profit
percentages will be rounded up to the nearest category.
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<PAGE> 19
SCHEDULE 10.3
OrthAlliance has succeeded to the rights to agreements substantially identical
to Exhibit 10.3 as follows:
1. Consulting and Business Services Agreement with Kenneth Brehnan, D.M.D.,
M.S., a Dental Corporation.
<PAGE> 1
EXHIBIT 10.4
FORM OF
CONSULTING AND BUSINESS SERVICES AGREEMENT
THIS CONSULTING AND BUSINESS SERVICES AGREEMENT (this
"Agreement"), dated as of ________________, ________, by and between PREMIER
ORTHODONTIC GROUP, INC., a Delaware corporation, and its successor or assigns
("Premier") and ___________________, a ________________ (the "Orthodontic
Entity").
WITNESSETH:
WHEREAS, the Orthodontic Entity owns and operates an
orthodontic practice with offices located in the facilities identified in
Exhibit 1.2 (the "Center(s)") and furnishes orthodontic and other dental care to
the general public through the services of the orthodontist(s) and dentist(s)
affiliated with the Orthodontic Entity to provide patient care at the Center(s)
(the "Orthodontist(s)"); and
WHEREAS, Premier is a company which has been formed to provide
business and consulting services to orthodontists; and
WHEREAS, the Orthodontic Entity and Premier mutually desire to
enter into this Consulting and Business Services Agreement.
NOW THEREFORE, in consideration of Ten Dollars ($10.00), the
mutual covenants and agreements herein contained, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I. RESPONSIBILITIES OF PREMIER
1.1 General. Premier shall furnish the Orthodontic Entity the
business and consulting services described in this Agreement, subject to the
requirements of the _____________________ Dental Practice Act relating to,
without limitations, the control by dentists over the practice of dentistry.
1.2 Facilities and Equipment. Premier will consult with and
advise the Orthodontic Entity on its equipment and office needs and the
efficient configuration of its office space and will arrange for all equipment
and furnishings determined by the Orthodontic Entity to be necessary for the
operation of the Center, as specified on Exhibit 1.2 (together with any future
asset purchases in accordance herewith, the "Assets"). The Orthodontic Entity
shall have complete custody and control over the Assets provided to the
Orthodontic Entity by Premier, including, without limitation, the right to make
decisions, after consultation with Premier, with respect to the repair,
replacement, modification and upkeep of such Assets. Unless the Orthodontic
Entity chooses to directly purchase furnishings, equipment and related assets in
the future, Premier shall purchase such assets and lease such assets to the
Orthodontic Entity under a capital leasing arrangement with such terms as
mutually agreed to by the Orthodontic Entity and Premier. If the Orthodontic
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Entity chooses to purchase such assets, then it shall depreciate such assets in
accordance with generally accepted accounting principles ("GAAP").
1.3 Personnel and Payroll. Premier will consult with the
Orthodontic Entity on its staffing needs. Premier will employ the staff
determined by the Orthodontic Entity to be necessary for the Center's
operations, as specified on Exhibit 1.3, except for the Orthodontists and
orthodontic and hygienist staff, who will be employed by the Orthodontic Entity.
At the election of the Orthodontic Entity, Premier will additionally assist in
staff scheduling, administer the Center's payroll and provide payroll accounting
services. The parties expressly agree that the Orthodontic Entity will have
discretion and control over all personnel and staffing matters in respect to the
Center's staff.
1.4 Business Systems, Procedures and Forms. Premier will
advise the Orthodontic Entity on and assist in the implementation and operation
of business systems and procedures. Premier will provide training to the
Center's staff in the use of such systems and procedures. Premier will
additionally provide the Orthodontic Entity clinical forms developed in
consultation with the Orthodontic Entity and will provide training to the
Center's staff in the use of such forms. The Orthodontic Entity expressly
acknowledges and agrees that it shall have no property rights in the foregoing
systems, procedures or clinical forms, and further agrees that such systems,
procedures and form shall be deemed to constitute Confidential Information
within the meaning of Section 2.8 hereof and shall be subject to the
restrictions on the use, appropriation and reproduction of such Confidential
Information provided for in Section 2.8. The parties agree that the Orthodontic
Entity's use of any such systems, procedures and forms shall be at the
Orthodontic Entity's sole discretion and, notwithstanding its use of any such
systems, procedures, or forms, the Orthodontic Entity shall retain control over
the management of all aspects of the Center's operations, including, without
limitation, patient scheduling.
1.5 Purchasing and Inventory Control. Premier in consultation
with the Orthodontic Entity, will provide the Orthodontic Entity purchasing
services for inventory and supplies and will be responsible for maintaining the
Center's inventory. The price charged to the Center for such inventory and
supplies shall be the same as the price paid by Premier, including any rebates.
In any event, the Orthodontic Entity has the right to purchase its supplies from
the supplier of its choice.
1.6 Accounting Services and Financial Reporting. Premier will
advise the Orthodontic Entity with respect to and provide or arrange for all
accounting and bookkeeping services reasonably required for the Center's normal
and routine operations. Premier will additionally advise the Orthodontic Entity
on and assist in implementing information systems designed in consultation with
the Orthodontic Entity to generate financial and operational data concerning the
Center. Premier will prepare and submit to the Orthodontic Entity monthly
operating data and quarterly financial reports with respect to the Center's
operations. Premier will analyze such data on an ongoing basis to advise the
Center on improving productivity.
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1.7 Legal Services. Premier shall arrange for all legal
services reasonably required by the Center, excluding the costs of malpractice
litigation which shall be the sole responsibility of the Orthodontist. Premier
shall use reasonable efforts to obtain under its blanket policies for the
Orthodontist as a Center Expense malpractice insurance that meets the coverage
requirements set forth in Section 4.1 hereof.
1.8 Marketing. Premier will advise the Orthodontic Entity in
designing and assist in executing a marketing plan to promote the Center's
professional services. In connection with the development of the marketing plan,
Premier will advise the Orthodontic Entity on establishing an installment plan
for patient payments, and, in the event the Orthodontic Entity elects to offer
such a plan, will assist in implementing and administering the plan. The
Orthodontic Entity shall exercise sole discretion and control over all policies
and decisions relating to marketing, pricing, credits, refunds, warranties and
advertising. All marketing activities hereunder will be conducted in compliance
with applicable laws and regulations of the State of __________________
governing the dental profession.
1.9 Planning. Premier will assess the business potential of
establishing orthodontic offices in new locations, and, in the event the
Orthodontic Entity elects to relocate or open an office in a new location,
subject to mutual agreement, Premier will provide assistance to the Orthodontic
Entity as appropriate.
1.10 Billing and Collections. Premier shall provide billing
and collection services for all professional services rendered at the Center,
all such billing and collections to be done in the name of and subject to the
control of the Orthodontic Entity.
1.11 Payment Services. On a continuous basis, the accounts
receivable of the Orthodontic Entity shall be deposited with Premier for the
Orthodontic Entity's account, and Premier shall use the funds collected from
such accounts receivable to pay the Consulting Fee (as hereinafter defined) and
to pay, on the Orthodontic Entity's behalf as a Center Expense (as hereinafter
defined) and otherwise, all expenses of the Orthodontic Entity duly authorized
for payment by the Orthodontic Entity and shall return to the Orthodontic Entity
any funds remaining after payment in full of such items.
1.12 Disbursement of Funds. (a) All monies collected by
Premier from the Orthodontic Entity's accounts receivable pursuant to Section
1.10 above shall be deposited into an account (the "Orthodontic Entity Account")
with a bank whose deposits are insured with the Federal Deposit Insurance
Corporation. The Orthodontic Entity Account shall contain the name of the
Orthodontic Entity, but Premier shall make all disbursements therefrom. Premier
shall account for all monies so disbursed from the Orthodontic Entity Account.
From the funds collected and deposited each month by Premier in the Orthodontic
Entity Account, Premier shall make the following disbursements, among others,
promptly when payable.
(i) Compensation payable to all employees of the
Orthodontic Entity, and all taxes and assessments payable to
local, state and Federal governments in connection with the
employment of such personnel; and
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(ii) All other sums otherwise due and payable by the
Orthodontic Entity as Center Expenses or otherwise, including,
without limitation, the Consulting Fee.
(b) In the event the funds in the Orthodontic Entity Account
will, at any time, be insufficient to cover current expenses, Premier shall
notify the Orthodontic Entity and Premier shall advance to the Orthodontic
Entity the necessary funds to pay current expenses for the benefit of the
Orthodontic Entity, which advances will be deemed to be loans to the Orthodontic
Entity to be repaid upon such terms as agreed to by the Orthodontic Entity and
Premier, which indebtedness shall be deemed a Center Expense for purposes of
Article III hereof; provided, however, that in any event the outstanding
principal amount of such indebtedness shall bear interest at an annual rate
adjusted on the first calendar day of each month to reflect that certain rate
from time to time published by the Wall Street Journal as the prime rate, as of
the last business day of the immediately preceding month for which such prime
rate was published (the "Prime Rate"), plus one percent (1%).
1.13 Records. Premier shall organize and develop systems in
consultation with the Orthodontic Entity with respect to all files and records
relating to the business operations of the Center, including, but not limited
to, accounting, billing and collection records. The parties expressly
acknowledge and agree that patient records shall at all times be and remain the
property and under the control of the Orthodontist and shall be located at the
Orthodontic Entity's facilities so that they are readily accessible for patient
care. The management of all files and records shall comply with applicable state
and federal statutes. Premier shall use its reasonable efforts to preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purpose necessary to perform the services set forth
herein; provided, however, in no event shall a breach of said confidentiality be
deemed a default under this Agreement.
II. OBLIGATIONS OF THE ORTHODONTIC ENTITY
2.1 General. The Orthodontic Entity will be responsible for
the management of the Center, in accordance with the requirements of the
_________________ law.
2.2 Employment of Orthodontists and Rendering of Patient
Care. The Orthodontic Entity will be responsible for the employment of all
Orthodontist(s) and hygienists affiliated with the Orthodontic Entity and
supervision of all care and services rendered to patients.
2.3 Professional Services. The Orthodontic Entity shall use
and occupy the offices and facilities designated on Exhibit 1.2 exclusively for
the practice of orthodontic and general dentistry services and shall comply with
all applicable local rules, ordinances and all standards of dental and
orthodontic care. It is expressly acknowledged by the parties that the
orthodontic practice conducted at the Center shall be conducted solely by the
Orthodontists associated with the Orthodontic Entity except those additional
orthodontists employed by the
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general dentists' offices from which the Orthodontic Entity rents only space,
and no other orthodontist shall be permitted to use or occupy the Center or
Centers, except as provided in Exhibit 2.3. The Orthodontic Entity shall provide
professional services to patients hereunder in compliance at all times with
ethical standards and laws and regulations applying to the dental profession.
The Orthodontic Entity shall ensure that each Orthodontist providing orthodontic
or dental services to patients is licensed by the state in which the Center is
located. In the event that any disciplinary, medical malpractice or other
actions are initiated against any such Orthodontist, the Orthodontic Entity
shall immediately inform Premier of such action and the underlying facts and
circumstances. The Orthodontic Entity agrees to cooperate with and participate
in the quality assurance/utilization review programs established by Premier or
mandated by accreditation and/or licensure standards applicable to the practice
of orthodontics and dentistry. Deficiencies discovered in the performance of any
personnel or in the quality of professional services shall be reported
immediately to Premier, and appropriate steps shall be taken by the Orthodontic
Entity at once to remedy such deficiencies. Any termination of an Orthodontist
other than for cause (as such term is defined in the Employment Agreement
between the Orthodontic Entity and the Orthodontist) must be approved by a
majority of the Board of Advisors of Premier.
2.4 Records. The Orthodontic Entity will keep or cause to be
kept accurate, complete and timely medical and other records of all patients.
Such records shall be sufficient to enable Premier, on behalf of the Orthodontic
Entity, to obtain payment for the services and facilities and to facilitate the
delivery of quality patient care by the Orthodontist.
2.5 Professional Expenses. Payments expended each fiscal year
by the Orthodontic Entity on behalf of the Orthodontist and other orthodontists
or dentists delivering patient care at the Center(s) for continuing education,
seminars, professional license fees and dues, professional memberships, expenses
related to a company automobile for the Orthodontist, and all other expenses of
the Orthodontist and other orthodontists and dentists delivering patient care at
the Center(s) that do not directly benefit the Orthodontic Entity (as reasonably
determined by Premier), up to the amount of three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue, shall be considered a Center
Expense. To the extent that such expenses exceed three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue for such year, the Center Expenses
shall be reduced by such excess amount solely for the purpose of calculating the
Consulting Fee; provided, however, that the Orthodontic Entity shall pay such
excess expenses. Notwithstanding the foregoing, the Orthodontic Entity 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 the Orthodontist. The Orthodontic Entity
shall ensure that the Orthodontist participates in such continuing education as
is necessary for such Orthodontist to remain current.
2.6 Professional Insurance Eligibility. The Orthodontic Entity
shall cooperate in the obtaining and retaining of professional liability
insurance by assuring that each of its Orthodontists is insurable and
participating in an on-going risk management program.
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2.7 Employment Agreement. The parties recognize that the
services to be provided by Premier are feasible only if the Orthodontic Entity
operates an active orthodontic practice to which it and each orthodontist
associated with the Orthodontic Entity devote their full time and attention.
Simultaneously with the execution of this Agreement, each Orthodontist who is or
becomes an equity owner of the Orthodontic Entity or delivers patient care at
the Center(s) on average more than ten (10) days each month, whether on the date
hereof or at any time during the term of this Agreement, shall enter into an
employment agreement with the Orthodontic Entity in substantially the form of
that certain Employment Agreement dated of even date herewith by and between the
Orthodontic Entity and the principal Orthodontist(s) of the Orthodontic Entity.
2.8 Confidentiality. The Orthodontic Entity agrees and
acknowledges that all materials provided by Premier or a Premier Affiliate (as
hereinafter defined) to the Orthodontic Entity, including all trade secrets,
constitute "Confidential Information" and are disclosed in confidence and with
the understanding that it constitutes valuable business information developed by
Premier at great expenditures of time, effort, and money. Trade secrets are
property rights protected by law and, for purposes of this letter, shall have
the meaning provided under applicable state law. The Orthodontic Entity further
agrees that it shall not, directly or indirectly, without the express prior
written consent of Premier, use or disclose such Confidential information for
any purpose other than in connection with the services to be rendered hereunder.
The Orthodontic Entity further agrees: (i) to keep strictly confidential and
hold in trust all Confidential Information and not disclose such Confidential
Information to any third party without the express prior written consent of
Premier; and (ii) to impose this obligation of confidentiality on its
affiliates, co-owners, associates, partners, employees, shareholders, members
and independent contractors. The Orthodontic Entity acknowledges that the
disclosure of Confidential Information to it by Premier 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
Orthodontic Entity shall immediately return and shall cause its affiliates,
co-owners, associates, partners, employees, shareholders, members and
independent contractors to immediately return to Premier all Confidential
Information (only to the extent such Confidential Information does not include
patient information), and the Orthodontic Entity will not, and will cause its
affiliates, co-owners, associates, partners, employees, shareholders, members
and independent contractors not to, thereafter use, appropriate, or reproduce
such Confidential Information. The Orthodontic Entity 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 Premier, 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, Premier, in
addition to any other remedies which may be available to it, shall be entitled
to injunctive or other equitable relief. As used in this Agreement, the term
"Premier Affiliate" shall mean (i) each corporation or other business entity
directly or indirectly controlling, controlled by, or under common control with
Premier and (ii) each orthodontic or dental practice to which Premier provides
management or consulting services, the employees and principals of such
practices, and each corporation or other business entity
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directly or indirectly controlling, controlled by, or under common control with
each such practice or the principals thereof.
2.9 Covenant Not to Compete. During the term of this
Agreement, the Orthodontic Entity, and any of its members or shareholders,
agrees not to establish, develop or open any offices for the provision of
orthodontic services within a ten (10) mile radius of any of the Centers covered
by this Agreement (the "Area of Dominant Influence") without the express written
consent of Premier. For a period of two (2) years following the termination of
this Agreement, the Orthodontic Entity and any of its members or shareholders
shall be prohibited within the Area of Dominant Influence (i) from advertising
in print (except for yellow page advertising and announcements for the opening
of a practice) or electronic media of any kind, (ii) from soliciting in any
manner patients, orthodontists or staff associated with the Centers, and (iii)
from soliciting any referrals from any dentist who referred one or more patients
to the Center within the three (3) years prior to the date of such termination.
In the event the Orthodontic Entity terminates this Agreement pursuant to
Section 5.2(b), then this Section 2.9 shall be void and of no further effect;
provided, however, the remainder of this Agreement shall remain in full force
and effect.
III. FINANCIAL ARRANGEMENTS
3.1 Consulting Fees. Premier shall receive an annual
Consulting Fee, subject to the provisions of Section 3.3 below, of 17% of the
Adjusted Gross Revenue (based on accrual method of accounting). Except as
otherwise provided, the amounts to be paid to Premier under this Section 3.1
shall be payable monthly. The amounts shall be paid based upon the previous
month's operating results of the Center. Upon preparation of quarterly financial
statements, final adjustments to the Consulting Fee for the quarter, if any are
required, shall be made and any additional amounts owing to Premier or the
Orthodontic Entity shall then be made. Any audit adjustments shall be reflected
in the calculations for the fourth quarter. The Orthodontic Entity hereby agrees
that in addition to the Consulting Fee, the Orthodontic Entity shall pay to
Premier 25% of the reduction, if any, of the Center's annual overhead percentage
as compared to the immediately preceding year as reasonably determined by
Premier multiplied by the current year's Adjusted Gross Revenue. Such additional
fee shall be paid as of the end of each fiscal year of the Orthodontic Entity
during the term hereof. See Exhibit 3.1 for an example of the calculation of the
additional fee.
3.2 Center Expenses. Premier shall be responsible for the
payment of all Center Expenses, as defined below, during the term of this
Agreement and the Orthodontic Entity shall immediately reimburse Premier for
such payments from funds held in the Orthodontic Entity Account.
3.3 Definitions. For the purposes of this Agreement, the
following definitions shall apply and shall comply with generally accepted
accounting principles:
(a) "Adjusted Gross Revenue" shall mean Gross Revenue
of the Center less any Adjustments, based on the accrual
method of accounting.
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(b) "Adjustments" shall mean any adjustments to Gross
Revenue for uncollectible accounts, professional courtesies
and other activities, contractual allowances and discounts
that do not generate a collectible fee.
(c) "Center Expenses" shall mean all operating and
non-operating expenses incurred in the operation of the
Center, including, without limitation:
(i) Salaries, benefits, payroll taxes,
workers compensation, health insurance, 401(k) and
other benefit plans, and other direct costs of all
employees of Premier at the Center, including dental
assistants (but excluding all Orthodontists);
provided that only expenses for health insurance,
401(k) and other benefit plans approved by the
Orthodontic Entity shall be included;
(ii) Direct costs of all employees or
consultants of Premier who, upon mutual agreement of
Premier and the Orthodontic Entity, provide services
at or, if consented to by the Orthodontic Entity, in
connection with the Center required for improved
clinic performance, such as work management,
materials management, purchasing, charge and coding
analysis, and business office consultation;
(iii) Obligations of Premier under leases or
subleases entered into in connection with the
operation of the Center;
(iv) Personal property and intangible taxes
assessed against Premier's assets used in connection
with the operation of the Center, commencing on the
date of this Agreement;
(v) Malpractice insurance expenses and
Orthodontist recruitment expenses as agreed to by
Premier and the Orthodontic Entity;
(vi) Property, casualty and liability insurance
for the Center and its operations;
(vii) In the event an opportunity arises for
additional Orthodontists in the Area of Dominant
Influence to become employed by or merge with the
Orthodontic Entity, actual out-of-pocket expenses of
Premier personnel working on a specified merger,
whether or not such merger is completed if such
merger is approved or requested by the Orthodontic
Entity;
(viii) Amortization of intangible asset value as
a result of each such acquisition referred to in
subsection (vii) above;
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(ix) Depreciation of all assets used by the
Orthodontic Entity in the operation of the Center;
(x) Repayment of interest on any funds
loaned to the Orthodontic Entity by Premier in
connection with the operation of the Center, at an
interest rate not in excess of the Prime Rate plus
one percent (1%);
(xi) Advertising and other marketing expenses
attributable to the promotion of the Center and/or
its Orthodontist(s); and
(xii) Other expenses incurred by Premier
with the consent of the Orthodontic Entity in
carrying out its obligations under this Agreement for
the benefit of the Center or the Orthodontic Entity;
provided, however, that such expenses shall not
include Premier's home office overhead expenses.
"Center Expenses" shall not include:
(i) Any federal or state income taxes; or
(ii) Any personal expenses of the
Orthodontist as permitted in the first sentence of
Section 3(b) of that certain employment agreement(s)
by and between the Orthodontist(s) and the
Orthodontic Entity, in excess of three percent (3%)
of the Orthodontic Entity's Adjusted Gross Revenue.
(d) "Contract" shall mean the agreement entered into
by patients with the Orthodontic Entity for the provision of
orthodontic services at a predetermined fee for an estimated
period of treatment.
(e) "Gross Revenue" shall mean all fees and charges
recorded or booked each month by or on behalf of the
Orthodontic Entity as a result of professional orthodontic or
other dental services personally furnished to patients by the
Orthodontist and those under the Orthodontist's supervision
and other fees or income generated in their capacity as a
professional prior to any Adjustments.
3.4 Additional Facilities. In the event the parties
agree to add an additional facility in which the Orthodontic Entity will provide
services, the consulting fees payable to Premier shall be determined by
aggregating the results of the operations of each additional facility with the
results of the operations of the existing Center or Centers and such fees
payable to Premier shall be calculated pursuant to the provisions of Section
3.1. All other provisions of this Article III shall apply to any additional
facilities. As part of its strategic growth strategy, Premier plans to provide
capital support or arrange favorable funding for
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orthodontic practice expansion and development. Any expenditures on practice
growth, acquisition or development shall be subject to approval by Premier's
Board of Directors.
IV. INSURANCE AND INDEMNITY
4.1 Insurance to be Maintained by the Orthodontic Entity.
Throughout the term of this Agreement, the Orthodontic Entity shall maintain
comprehensive professional liability insurance with limits of not less than
$500,000 per claim and with aggregate policy limits of not less than $1,000,000
per Orthodontist providing services at the Center and a separate limit for the
Orthodontic Entity or such other amounts required by the applicable state laws,
regulations, rules or directives. The Orthodontic Entity shall be responsible
for all such liabilities in excess of the limits of such policies. Premier
agrees to negotiate for and cause premiums to be paid with respect to such
insurance. Premiums and deductibles with respect to such policies shall be a
Center Expense.
4.2 Insurance to be Maintained by Premier. Throughout the term
of this Agreement, Premier will use reasonable efforts to provide and maintain,
as a Center Expense, comprehensive general liability and property insurance
covering the Center premises and operations.
4.3 Tail Insurance Coverage. The Orthodontic Entity will cause
each individual Orthodontist providing services at the Center to enter into an
agreement with the Orthodontic Entity that upon termination of such Orthodontic
Entity's relationship with the Orthodontist, for any reason, tail insurance
coverage for a period of three (3) years will be purchased by each Orthodontist.
Such provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by the Orthodontic Entity and the
individual Orthodontists, and the Orthodontic Entity hereby covenants with
Premier to enforce such provisions relating to the tail insurance coverage or to
provide such coverage at the expense of the Orthodontic Entity.
4.4 Additional Insureds. The Orthodontic Entity shall have
Premier named as an additional insured on the Orthodontic Entity's professional
liability insurance programs.
4.5 Indemnification. The Orthodontic Entity shall indemnify,
hold harmless and defend Premier, its officers, directors, shareholders, members
and employees, from and against any and all liabilities, losses, damages,
claims, causes of action, and expenses (including reasonable attorneys' fees),
whether or not covered by insurance, caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of medical, dental
or orthodontic services or the performance of any intentional acts, negligent
acts or omissions by the Orthodontic Entity and/or its affiliates, shareholders,
members, agents, employees and/or subcontractors (other than Premier) prior to
and after the date of this Agreement and throughout the term hereof. Premier
shall indemnify, hold harmless and defend the Orthodontic Entity, and its
directors, shareholders, members and employees, from and against any and all
liabilities, losses, damages, claims, causes of action, and expenses (including
reasonable attorneys' fees), caused or asserted to have been caused,
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directly or indirectly, by or as a result of the performance of any intentional
acts, negligent acts or omissions by Premier, a Premier Affiliate and/or their
members, shareholders, agents, employees and/or subcontractors (other than the
Orthodontic Entity) during the term of this Agreement.
V. TERM AND TERMINATION
5.1 Term of Agreement. This Agreement shall commence on the
date the Securities and Exchange Commission declares effective Premier's
registration Statement on Form S-1 for the sale of Premier's common stock or
membership interests in an initial public offering (the "IPO") and shall expire
on the twentieth (20th) anniversary thereof unless earlier terminated pursuant
to the terms hereof. In the event that Premier does not complete the IPO on or
before October 15, 1997, this Agreement shall be null and void and of no further
effect between the parties hereto.
5.2 Termination by the Orthodontic Entity. The Orthodontic
Entity 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 Premier, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by Premier, except for the filing of a
petition in involuntary bankruptcy against Premier which is dismissed within
thirty (30) days thereafter, the Orthodontic Entity may give written notice of
the immediate termination of this Agreement.
(b) In the event Premier 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 ninety (90) days after written notice
thereof has been given to Premier by the Orthodontic Entity (which notice shall
contain specific details of the reason for such default), the Orthodontic Entity
may terminate this Agreement; provided, however, if the nature of such default
is such that cure is not capable within said 90-day period, then Premier shall
have such additional time as may be required to effect and complete such cure
provided that Premier shall commence such cure within the aforesaid 90-day
period and shall prosecute such cure to completion with reasonable diligence.
(c) In the event that the IPO has not been completed on or
before October 15, 1997, the Orthodontic Entity may terminate this Agreement.
(d) In the event that a "Change in Control" (as herein
defined) occurs with respect to Premier, the Orthodontic Entity may, within 10
days after the expiration of the Approval Period (as herein defined), terminate
this Agreement by providing five (5) days prior written notice to Premier. For
purposes of this Section, "Change in Control" means an acquisition or
aggregation of any voting securities of Premier by a "person" (as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) immediately
after which such person is or becomes the beneficial owner, directly or
indirectly, of 15% or more of the combined voting power of Premier's then
outstanding voting securities; provided, however,
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that no acquisition or aggregation of Premier's voting securities shall be
deemed a "Change in Control" if such acquisition or aggregation (i) has the
prior approval of Premier's board of directors, or (ii) is approved by Premier's
board of directors within 60 days after Premier receives notice of such
acquisition or aggregation (the "Approval Period").
5.3 Termination by Premier. Premier 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 Orthodontic
Entity, or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the Orthodontic
Entity, except for the filing of an involuntary petition in bankruptcy against
the Orthodontic Entity which is dismissed within thirty (30) days thereafter,
Premier may give written notice of the immediate termination of this Agreement.
(b) In the event the Orthodontic Entity 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 ninety (90) days
after written notice thereof has been given to the Orthodontic Entity by
Premier, Premier may terminate this Agreement.
(c) In the event that the IPO has not been completed on or
before October 15, 1997, Premier may terminate this Agreement.
5.4 Actions after Termination. Upon termination of this
Agreement by either party for any reason other than a default by the Orthodontic
Entity or upon expiration of this Agreement, the Orthodontic Entity may, and
upon termination of this Agreement by Premier due to the reasons set forth in
Section 5.3(b) hereof, the Orthodontic Entity shall:
(a) Purchase all improvements, additions or leasehold
improvements which have been made by Premier and which relate solely to the
performance of its obligations under this Agreement at adjusted book value;
(b) Assume all debt and all contracts, payables and leases
which are obligations of Premier and which relate solely to the performance of
its obligations under this Agreement or the properties subleased by Premier; and
(c) Purchase from Premier at book value all of the equipment
of the Center, including all replacements and additions thereto made by Premier
pursuant to the performance of its obligations under this Agreement, and all
other assets, including inventory and supplies, tangibles and intangibles
(including but not limited to accounts receivable), set forth on the balance
sheet prepared for the month most recently ended prior to the date of such
termination in accordance with GAAP to reflect operations of the Center,
depreciation, amortization and other adjustments of assets shown on such balance
sheet.
5.5 Closing of Repurchase by the Orthodontic Entity and
Effective Date of Termination. Unless another form of payment is agreed to by
Premier at such time, the
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Orthodontic Entity shall pay cash to Premier for (i) the assets repurchased
pursuant to Section 5.4 and (ii) an amount equal to the Consulting Fee that
would have been payable hereunder for services rendered to patients by the
Orthodontic Entity prior to the termination of this Agreement; provided,
however, that such cash Consulting Fee payment shall only be made as payment for
such services as are actually collected by the Orthodontic Entity. The amount of
the purchase price shall be reduced by the amount of debt and liabilities of
Premier assumed by the Orthodontic Entity and shall also be reduced by any
payment Premier has failed to make under this Agreement. The Orthodontic Entity
and any Orthodontist associated with the Orthodontic Entity shall execute such
documents as may be required to assume the liabilities set forth in Section
5.4(c) and shall use its best efforts to remove Premier from any liability with
respect to such repurchased assets and with respect to any property leased or
subleased by Premier. The closing date for the repurchase shall be determined by
the Orthodontic Entity, but shall in no event occur later than 180 days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and the Orthodontic
Entity and Premier shall be released from the restrictive covenants provided for
in Section 2.9 on the closing date. 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.
5.6 Patient Records. Upon termination of this Agreement, the
Orthodontic Entity shall retain all patient medical records maintained by the
Orthodontic Entity or Premier in the name of the Orthodontic Entity. During the
term of this Agreement, and thereafter, the Orthodontic Entity or its designee
shall have reasonable access during normal business hours to the Orthodontic
Entity's and Premier's records, including, but not limited to, records of
collections, expenses and disbursements as kept by Premier in performing
Premier's obligations under this Agreement, and the Orthodontic Entity may copy
any or all such records.
VI. INDEPENDENT CONTRACTOR
6.1 Orthodontic Entity's Control Over the Orthodontic
Practice. Notwithstanding the authority granted to Premier herein, Premier and
the Orthodontic Entity agree that the affiliated Orthodontist, personally or
through any of his professional employees or agents, shall have complete control
and supervision over the business aspects of the Orthodontic Entity'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 Orthodontist(s). The
Orthodontist(s) shall have sole authority to direct the business, professional,
and ethical aspects of the orthodontic practice. Premier will have no authority,
directly or indirectly, to perform, and will not perform, any orthodontic
function, or to influence or otherwise interfere with the exercise of the
Orthodontist(s) professional judgment. Premier may, however, advise the
Orthodontic Entity as to the relationship between its performance of orthodontic
functions and the overall administrative and business functions of its practice.
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6.2 Independent Relationship. The Orthodontic Entity and
Premier intend to act and perform as independent contractors, and the provisions
hereof are not intended to create any partnership, joint venture, agency or
employment relationship between the parties. The Orthodontic Entity will not
have any claim under this Agreement, or otherwise, against Premier for vacation
pay, sick leave, unemployment insurance, worker's compensation, disability
benefits or employee benefits of any kind.
6.3 Other Professionals. No provision of this Agreement is
intended to limit Premier's right, authority, or ability under applicable law to
contract with other dentists or physicians, or to employ, contract with, or
enter into any partnership or joint venture with any healthcare professional,
provided that the exercise of such right, authority or ability does not
contravene the terms of this Agreement.
6.4 Patient Care. Nothing in this Agreement is intended to
interfere, or shall be construed as interfering, in any way with the
Orthodontist(s)'s ability to independently exercise professional and ethical
judgment in the performance of his patient care responsibilities.
VII. GENERAL PROVISIONS
7.1 Assignment. This Agreement shall be assignable by Premier
to (i) any person, firm or corporation that controls or is under common control
with Premier, (ii) US Orthodontic Care, Inc. ("USOC") or any person, firm or
corporation that controls or is under common control with USOC, or (iii) any
entity that results from a merger or other combination between Premier and USOC
("Newco") and any person, firm or corporation that controls or is under common
control with Newco. Except as set forth above, neither Premier nor the
Orthodontic Entity shall have the right to assign their respective rights and
obligations hereunder without the written consent of the other party, which
consent shall not be unreasonably withheld. Subject to this provision, this
Agreement shall be binding upon the parties hereto, and their successors and
assigns.
7.2 Whole Agreement; Modification. There are no other
agreements or understandings, written or oral, between the parties regarding
this Agreement, the Exhibits and the Schedules, other than as set forth herein.
This Agreement shall not be modified or amended except by a written document
executed by both parties to this Agreement, and such written modification(s)
shall be attached hereto.
7.3 Notices. All notices required or permitted by this
Agreement shall be in writing and shall be addressed as follows:
To Premier: Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard, Suite 200
Torrance, California 90505
Attn: Mr. Sam Westover, Chief Executive Officer
Telecopier: (310) 791-5660
Telephone: (310) 791-5657
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With a copy to: Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attn: Paul A. Quiros, Esquire
To the
------------------------------------------
Orthodontic Entity:
------------------------------------------
Attn:
------------------------------------
or to such other address as either party shall notify the other.
7.4 Waiver of Provisions. Any waiver of any terms and
conditions hereof must be in writing, and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
7.5 Governing Law. The validity, interpretation and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of ________________. The parties acknowledge that
Premier 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 Premier 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 Premier shall be deemed waived and forever unenforceable and
the provision of Section 7.12 shall be applicable.
7.6 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.
7.7 Compliance with Applicable Laws. Both parties shall comply
with all applicable federal, state and local laws, regulations and restrictions
in the conduct of their obligations under this Agreement.
7.8 Severability. In the event that any provision of this
Agreement or the application thereof to any of the parties hereto or any
circumstance in any jurisdiction governing this Agreement shall, to any extent,
be invalid or unenforceable under any applicable statute, regulation or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict herewith and shall be deemed modified to conform to such statute,
regulation or rule of law, and the remainder of this Agreement and the
application of any such invalid or unenforceable provision to parties,
jurisdictions or circumstances other
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than to whom or to which it is held invalid or unenforceable shall not be
affected thereby nor shall the same affect the validity or enforceability of any
other provision of this Agreement.
7.9 Additional Documents. Each of the parties hereto agrees
to execute any document or documents that may be requested from time to time by
the other party to implement or complete such party's obligations pursuant to
this Agreement.
7.10 Attorneys' Fees. If legal action is commenced by either
party to enforce or defend its rights under this Agreement, the prevailing party
in such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
7.11 Confidentiality. Neither 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 (past, present or
future) that was obtained by the other in the course of the negotiation of this
Agreement or in the course of the performance of this Agreement, without the
other party's 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.
7.12 Contract Modifications for Prospective Legal Events. In
the event any state or federal laws or regulations, 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 or regulations, the Orthodontic Entity and Premier shall amend this
Agreement as necessary. To the maximum extent possible, any such amendment shall
preserve the underlying economic and financial arrangements between the
Orthodontic Entity and Premier.
7.13 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.
7.14 Language Construction. The language in all parts of this
Agreement shall be construed, in all cases, according to the parties' intent and
the parties hereto 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.
7.15 No Obligation to Third Parties. None of the obligations
and duties of Premier or the Orthodontic Entity under this Agreement shall in
any way or in any manner be deemed to create any obligation of Premier or of the
Orthodontic Entity to, or any rights in, any person or entity not a party to
this Agreement.
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7.16 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same Agreement.
7.17 Singular and Plural; Gender. Where the context so
requires or permits, the use of the singular form includes the plural, and the
use of the plural form includes the singular, and the use of any gender includes
any and all genders.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
ORTHODONTIC ENTITY:
-------------------------------
By:
Name
Title:
PREMIER:
PREMIER ORTHODONTIC GROUP, INC.
By:
Name:
Title:
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EXHIBIT 10.4
ADDITIONAL FEE CALCULATION
If the Center's Adjusted Gross Revenue for Year 1 is $1,000,000 and the Center's
annual overhead for Year 1 is $500,000 and the Center's Adjusted Gross Revenue
for Year 2 is $1,200,000 and the Center's annual overhead for Year 2 is
$552,000, then the additional fee required by Section 3.1 shall be calculated as
follows:
Year 1 overhead percentage: $500,000/$1,000,000 = 50%
Year 2 overhead percentage: $552,000/$1,200,000 = 46%
Reduction in Center's office overhead percentage: 50% - 46% = 4%
4% * $1,200,000 = $48,000
$48,000 * 25% fee = $12,000 additional fee
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SCHEDULE 10.4
OrthAlliance has succeeded to the rights to agreements identical to
Exhibit 10.4 as follows:
1. Consulting and Business Services Agreement with Bryant Dental
Corporation.
2. Consulting and Business Services Agreement with John R. Goode,
D.D.S., Incorporated.
3. Consulting and Business Services Agreement with Gray Dental
Corporation.
4. Consulting and Business Services Agreement with Halliburton
Orthodontics, P.C.
5. Consulting and Business Services Agreement with Nettleman
Dental Corporation.
6. Consulting and Business Services Agreement with Victor S.
Sands, D.D.S., A Professional Corp.
7. Consulting and Business Services Agreement with A. Paul
Serrano, D.D.S., P.C.
8. Consulting and Business Services Agreement with Gilbert H.
Snow, D.D.S., Inc.
9. Consulting and Business Services Agreement with Les O. Starnes,
D.D.S., M.S., A Professional Corporation.
<PAGE> 1
EXHIBIT 10.5
PREMIER ORTHODONTIC GROUP, INC.
CONSULTING AND BUSINESS SERVICES AGREEMENT
THIS CONSULTING AND BUSINESS SERVICES AGREEMENT (this
"Agreement"), dated as of ______________, by and between PREMIER ORTHODONTIC
GROUP, INC., a Delaware corporation, and its successor or assigns ("Premier")
and _____________________________, a Utah ________________________ (the
"Orthodontic Entity").
W I T N E S S E T H:
WHEREAS, the Orthodontic Entity owns and operates an
orthodontic practice with offices located in the facilities identified in
Exhibit 1.2 (the "Center(s)") and furnishes orthodontic and other dental care
to the general public through the services of the orthodontist(s) and
dentist(s) affiliated with the Orthodontic Entity to provide patient care at
the Center(s) (the "Orthodontist(s)"); and
WHEREAS, Premier is a company which has been formed to provide
business and consulting services to orthodontists; and
WHEREAS, the Orthodontic Entity and Premier mutually desire to
enter into this Consulting and Business Services Agreement.
NOW THEREFORE, in consideration of Ten Dollars ($10.00), the
mutual covenants and agreements herein contained, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I. RESPONSIBILITIES OF PREMIER
1.1 General. Premier shall furnish the Orthodontic
Entity the business and consulting services described in this Agreement,
subject to the requirements of the Utah law relating to, without limitations,
the control by dentists over the practice of dentistry.
1.2 Facilities and Equipment. Premier will consult with
and advise the Orthodontic Entity on its equipment and office needs and the
efficient configuration of its office space and will arrange for all equipment
and furnishings determined by the Orthodontic Entity to be necessary for the
operation of the Center, as specified on Exhibit 1.2 (together with any future
asset purchases in accordance herewith, the "Assets"). The Orthodontic Entity
shall have complete custody and control over the Assets provided to the
Orthodontic Entity by Premier, including, without limitation, the right to make
decisions, after consultation with Premier, with respect to the repair,
replacement, modification and upkeep of such Assets. Unless the Orthodontic
Entity chooses to directly purchase furnishings, equipment and related assets
in the future, Premier shall purchase such assets
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and lease such assets to the Orthodontic Entity under a capital leasing
arrangement with such terms as mutually agreed to by the Orthodontic Entity and
Premier. If the Orthodontic Entity chooses to purchase such assets, then it
shall depreciate such assets in accordance with generally accepted accounting
principles ("GAAP").
1.3 Personnel and Payroll. Premier will consult with the
Orthodontic Entity on its staffing needs. Premier will employ the staff
determined by the Orthodontic Entity to be necessary for the Center's
operations, as specified on Exhibit 1.3, except for the Orthodontists and
orthodontic, hygienist and dental assistant staff, who will be employed by the
Orthodontic Entity. At the election of the Orthodontic Entity, Premier will
additionally assist in staff scheduling, administer the Center's payroll and
provide payroll accounting services. The parties expressly agree that the
Orthodontic Entity will have discretion and control over all personnel and
staffing matters in respect to the Center's staff.
1.4 Business Systems, Procedures and Forms. Premier will
advise the Orthodontic Entity on and assist in the implementation and operation
of business systems and procedures. Premier will provide training to the
Center's staff in the use of such systems and procedures. Premier will
additionally provide the Orthodontic Entity clinical forms developed in
consultation with the Orthodontic Entity and will provide training to the
Center's staff in the use of such forms. The Orthodontic Entity expressly
acknowledges and agrees that it shall have no property rights in the foregoing
systems, procedures or clinical forms, and further agrees that such systems,
procedures and form shall be deemed to constitute Confidential Information
within the meaning of Section 2.8 hereof and shall be subject to the
restrictions on the use, appropriation and reproduction of such Confidential
Information provided for in Section 2.8. The parties agree that the
Orthodontic Entity's use of any such systems, procedures and forms shall be at
the Orthodontic Entity's sole discretion and, notwithstanding its use of any
such systems, procedures, or forms, the Orthodontic Entity shall retain control
over the management of all aspects of the Center's operations, including,
without limitation, patient scheduling.
1.5 Purchasing and Inventory Control. Premier in
consultation with the Orthodontic Entity, will provide the Orthodontic Entity
purchasing services for inventory and supplies and will be responsible for
maintaining the Center's inventory. The price charged to the Center for such
inventory and supplies shall be the same as the price paid by Premier,
including any rebates. In any event, the Orthodontic Entity has the right to
purchase its supplies from the supplier of its choice.
1.6 Accounting Services and Financial Reporting. Premier
will advise the Orthodontic Entity with respect to and provide or arrange for
all accounting and bookkeeping services reasonably required for the Center's
normal and routine operations. Premier will additionally advise the
Orthodontic Entity on and assist in implementing information systems designed
in consultation with the Orthodontic Entity to generate financial and
operational data concerning the Center. Premier will prepare and submit to the
Orthodontic Entity monthly operating data and quarterly financial reports with
respect to the Center's operations. Premier will analyze such data on an
ongoing basis to advise the Center on improving productivity.
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1.7 Legal Services. Premier shall arrange for all legal
services reasonably required by the Center, excluding the costs of malpractice
litigation which shall be the sole responsibility of the Orthodontist. Premier
shall use reasonable efforts to obtain under its blanket policies for the
Orthodontist as a Center Expense malpractice insurance that meets the coverage
requirements set forth in Section 4.1 hereof.
1.8 Marketing. Premier will advise the Orthodontic
Entity in designing and assist in executing a marketing plan to promote the
Center's professional services. In connection with the development of the
marketing plan, Premier will advise the Orthodontic Entity on establishing an
installment plan for patient payments, and, in the event the Orthodontic Entity
elects to offer such a plan, will assist in implementing and administering the
plan. The Orthodontic Entity shall exercise sole discretion and control over
all policies and decisions relating to marketing, pricing, credits, refunds,
warranties and advertising. All marketing activities hereunder will be
conducted in compliance with applicable laws and regulations of the State of
Utah governing the dental profession.
1.9 Planning. Premier will assess the business potential
of establishing orthodontic offices in new locations, and, in the event the
Orthodontic Entity elects to relocate or open an office in a new location,
subject to mutual agreement, Premier will provide assistance to the Orthodontic
Entity as appropriate.
1.10 Billing and Collections. Premier shall provide
billing and collection services for all professional services rendered at the
Center, all such billing and collections to be done in the name of and subject
to the control of the Orthodontic Entity.
1.11 Payment Services. On a continuous basis, the
accounts receivable of the Orthodontic Entity shall be deposited with Premier
for the Orthodontic Entity's account, and Premier shall use the funds collected
from such accounts receivable to pay the Consulting Fee (as hereinafter
defined) and to pay, on the Orthodontic Entity's behalf as a Center Expense (as
hereinafter defined) and otherwise, all expenses of the Orthodontic Entity duly
authorized for payment by the Orthodontic Entity and shall return to the
Orthodontic Entity any funds remaining after payment in full of such items.
1.12 Disbursement of Funds. (a) All monies collected by
Premier from the Orthodontic Entity's accounts receivable pursuant to Section
1.10 above shall be deposited into an account (the "Orthodontic Entity
Account") with a bank whose deposits are insured with the Federal Deposit
Insurance Corporation. The Orthodontic Entity Account shall contain the name
of the Orthodontic Entity, but Premier shall make all disbursements therefrom.
Premier shall account for all monies so disbursed from the Orthodontic Entity
Account. From the funds collected and deposited each month by Premier in the
Orthodontic Entity Account, Premier shall make the following disbursements,
among others, promptly when payable.
(i) Compensation payable to all employees of the
Orthodontic Entity, and all taxes and assessments payable to
local, state and Federal governments in connection with the
employment of such personnel; and
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(ii) All other sums otherwise due and payable by
the Orthodontic Entity as Center Expenses or otherwise,
including, without limitation, the Consulting Fee.
(b) In the event the funds in the Orthodontic Entity
Account will, at any time, be insufficient to cover current expenses, Premier
shall notify the Orthodontic Entity and Premier shall advance to the
Orthodontic Entity the necessary funds to pay current expenses for the benefit
of the Orthodontic Entity, which advances will be deemed to be loans to the
Orthodontic Entity to be repaid upon such terms as agreed to by the Orthodontic
Entity and Premier, which indebtedness shall be deemed a Center Expense for
purposes of Article III hereof; provided, however, that in any event the
outstanding principal amount of such indebtedness shall bear interest at an
annual rate adjusted on the first calendar day of each month to reflect that
certain rate from time to time published by the Wall Street Journal as the
prime rate, as of the last business day of the immediately preceding month for
which such prime rate was published (the "Prime Rate"), plus one percent (1%).
1.13 Records. Premier shall organize and develop systems
in consultation with the Orthodontic Entity with respect to all files and
records relating to the business operations of the Center, including, but not
limited to, accounting, billing and collection records. The parties expressly
acknowledge and agree that patient records shall at all times be and remain the
property and under the control of the Orthodontist and shall be located at the
Orthodontic Entity's facilities so that they are readily accessible for patient
care. The management of all files and records shall comply with applicable
state and federal statutes. Premier shall use its reasonable efforts to
preserve the confidentiality of patient medical records and use information
contained in such records only for the limited purpose necessary to perform the
services set forth herein; provided, however, in no event shall a breach of
said confidentiality be deemed a default under this Agreement.
II. OBLIGATIONS OF THE ORTHODONTIC ENTITY
2.1 General. The Orthodontic Entity will be responsible
for the management of the Center, in accordance with the requirements of Utah
law.
2.2 Employment of Orthodontists and Rendering of Patient
Care. The Orthodontic Entity will be responsible for the employment of all
Orthodontist(s), hygienists and dental assistants affiliated with the
Orthodontic Entity and supervision of all care and services rendered to
patients.
2.3 Professional Services. The Orthodontic Entity shall
use and occupy the offices and facilities designated on Exhibit 1.2 exclusively
for the practice of orthodontic and general dentistry services and shall comply
with all applicable local rules, ordinances and all standards of dental and
orthodontic care. It is expressly acknowledged by the parties that the
orthodontic practice conducted at the Center shall be conducted solely by the
Orthodontists associated with the Orthodontic Entity except those additional
orthodontists employed by the general dentists' offices from which the
Orthodontic Entity rents only space, and no other
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orthodontist shall be permitted to use or occupy the Center or Centers, except
as provided in Exhibit 2.3. The Orthodontic Entity shall provide professional
services to patients hereunder in compliance at all times with ethical
standards and laws and regulations applying to the dental profession. The
Orthodontic Entity shall ensure that each Orthodontist providing orthodontic or
dental services to patients is licensed by the state in which the Center is
located. In the event that any disciplinary, medical malpractice or other
actions are initiated against any such Orthodontist, the Orthodontic Entity
shall immediately inform Premier of such action and the underlying facts and
circumstances. The Orthodontic Entity agrees to cooperate with and participate
in the quality assurance/utilization review programs established by Premier or
mandated by accreditation and/or licensure standards applicable to the practice
of orthodontics and dentistry. Deficiencies discovered in the performance of
any personnel or in the quality of professional services shall be reported
immediately to Premier, and appropriate steps shall be taken by the Orthodontic
Entity at once to remedy such deficiencies. Any termination of an Orthodontist
other than for cause (as such term is defined in the Employment Agreement
between the Orthodontic Entity and the Orthodontist) must be approved by a
majority of the Board of Advisors of Premier.
2.4 Records. The Orthodontic Entity will keep or cause
to be kept accurate, complete and timely medical and other records of all
patients. Such records shall be sufficient to enable Premier, on behalf of the
Orthodontic Entity, to obtain payment for the services and facilities and to
facilitate the delivery of quality patient care by the Orthodontist.
2.5 Professional Expenses. Payments expended each fiscal
year by the Orthodontic Entity on behalf of the Orthodontist and other
orthodontists or dentists delivering patient care at the Center(s) for
continuing education, seminars, professional license fees and dues,
professional memberships, expenses related to a company automobile for the
Orthodontist, and all other expenses of the Orthodontist and other
orthodontists and dentists delivering patient care at the Center(s) that do not
directly benefit the Orthodontic Entity (as reasonably determined by Premier),
up to the amount of three percent (3%) of the Orthodontic Entity's Adjusted
Gross Revenue, shall be considered a Center Expense. To the extent that such
expenses exceed three percent (3%) of the Orthodontic Entity's Adjusted Gross
Revenue for such year, the Center Expenses shall be reduced by such excess
amount solely for the purpose of calculating the Consulting Fee; provided,
however, that the Orthodontic Entity shall pay such excess expenses.
Notwithstanding the foregoing, the Orthodontic Entity 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 the Orthodontist. The Orthodontic Entity shall ensure
that the Orthodontist participates in such continuing education as is necessary
for such Orthodontist to remain current.
2.6 Professional Insurance Eligibility. The Orthodontic
Entity shall cooperate in the obtaining and retaining of professional liability
insurance by assuring that each of its Orthodontists is insurable and
participating in an on-going risk management program.
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2.7 Employment Agreement. The parties recognize that the
services to be provided by Premier are feasible only if the Orthodontic Entity
operates an active orthodontic practice to which it and each orthodontist
associated with the Orthodontic Entity devote their full time and attention.
Simultaneously with the execution of this Agreement, each Orthodontist who is
or becomes an equity owner of the Orthodontic Entity or delivers patient care
at the Center(s) on average more than ten (10) days each month, whether on the
date hereof or at any time during the term of this Agreement, shall enter into
an employment agreement with the Orthodontic Entity in substantially the form
of that certain Employment Agreement dated of even date herewith by and between
the Orthodontic Entity and the principal Orthodontist(s) of the Orthodontic
Entity.
2.8 Confidentiality. The Orthodontic Entity agrees and
acknowledges that all materials provided by Premier or a Premier Affiliate (as
hereinafter defined) to the Orthodontic Entity, including all trade secrets,
constitute "Confidential Information" and are disclosed in confidence and with
the understanding that it constitutes valuable business information developed
by Premier at great expenditures of time, effort, and money. Trade secrets are
property rights protected by law and, for purposes of this letter, shall have
the meaning provided under applicable Utah law. The Orthodontic Entity further
agrees that it shall not, directly or indirectly, without the express prior
written consent of Premier, use or disclose such Confidential information for
any purpose other than in connection with the services to be rendered
hereunder. The Orthodontic Entity further agrees: (i) to keep strictly
confidential and hold in trust all Confidential Information and not disclose
such Confidential Information to any third party without the express prior
written consent of Premier; and (ii) to impose this obligation of
confidentiality on its affiliates, co-owners, associates, partners, employees,
shareholders, members and independent contractors. The Orthodontic Entity
acknowledges that the disclosure of Confidential Information to it by Premier
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 Orthodontic Entity shall immediately return and shall cause its
affiliates, co-owners, associates, partners, employees, shareholders, members
and independent contractors to immediately return to Premier all Confidential
Information (only to the extent such Confidential Information does not include
patient information), and the Orthodontic Entity will not, and will cause its
affiliates, co-owners, associates, partners, employees, shareholders, members
and independent contractors not to, thereafter use, appropriate, or reproduce
such Confidential Information. The Orthodontic Entity 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 Premier,
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, Premier, in
addition to any other remedies which may be available to it, shall be entitled
to injunctive or other equitable relief. As used in this Agreement, the term
"Premier Affiliate" shall mean (i) each corporation or other business entity
directly or indirectly controlling, controlled by, or under common control with
Premier and (ii) each orthodontic or dental practice to which Premier provides
management or consulting services, the employees and principals of such
practices, and each corporation or other business entity
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directly or indirectly controlling, controlled by, or under common control with
each such practice or the principals thereof.
2.9 Covenant Not to Compete. During the term of this
Agreement, the Orthodontic Entity, and any of its members or shareholders,
agrees not to establish, develop or open any offices for the provision of
orthodontic services within a ten (10) mile radius of any of the Centers
covered by this Agreement (the "Area of Dominant Influence") without the
express written consent of Premier. For a period of two (2) years following
the termination of this Agreement, the Orthodontic Entity and any of its
members or shareholders shall be prohibited within the Area of Dominant
Influence (i) from advertising in print (except for yellow page advertising and
announcements for the opening of a practice) or electronic media of any kind,
(ii) from soliciting in any manner patients, orthodontists or staff associated
with the Centers, and (iii) from soliciting any referrals from any dentist who
referred one or more patients to the Center within the three (3) years prior to
the date of such termination. In the event the Orthodontic Entity terminates
this Agreement pursuant to Section 5.2(b), then this Section 2.9 shall be void
and of no further effect; provided, however, the remainder of this Agreement
shall remain in full force and effect.
III. FINANCIAL ARRANGEMENTS
3.1 Consulting Fees. Premier shall receive a Consulting
Fee, subject to the provisions of Section 3.3 below, of __________________
__________________________ dollars ($______________) per year payable monthly.
On the first anniversary of the date hereof and on each anniversary thereafter
during the term hereof, the Consulting Fee shall be increased by three percent
(3%) per year.
3.2 Center Expenses. Premier shall be responsible for
the payment of all Center Expenses, as defined below, during the term of this
Agreement and the Orthodontic Entity shall immediately reimburse Premier for
such payments from funds held in the Orthodontic Entity Account.
3.3 Definitions. For the purposes of this Agreement, the
term "Center Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the Center, including, without limitation:
(a) Salaries, benefits, payroll taxes, workers
compensation, health insurance, 401(k) and other benefit
plans, and other direct costs of all employees of Premier at
the Center, including dental assistants (but excluding all
Orthodontists); provided that only expenses for health
insurance, 401(k) and other benefit plans approved by the
Orthodontic Entity shall be included;
(b) Direct costs of all employees or consultants
of Premier who, upon mutual agreement of Premier and the
Orthodontic Entity, provide services at or, if consented to by
the Orthodontic Entity, in connection with the Center required
for improved clinic performance, such as work
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<PAGE> 8
management, materials management, purchasing, charge and
coding analysis, and business office consultation;
(c) Obligations of Premier under leases or
subleases entered into in connection with the operation of the
Center;
(d) Personal property and intangible taxes
assessed against Premier's assets used in connection with the
operation of the Center, commencing on the date of this
Agreement;
(e) Malpractice insurance expenses and
Orthodontist recruitment expenses as agreed to by Premier and
the Orthodontic Entity;
(f) Property, casualty and liability insurance
for the Center and its operations;
(g) In the event an opportunity arises for
additional Orthodontists in the Area of Dominant Influence to
become employed by or merge with the Orthodontic Entity,
actual out-of-pocket expenses of Premier personnel working on
a specified merger, whether or not such merger is completed if
such merger is approved or requested by the Orthodontic
Entity;
(h) Amortization of intangible asset value as a
result of each such acquisition referred to in subsection (g)
above;
(i) Depreciation of all assets used by the
Orthodontic Entity in the operation of the Center;
(j) Repayment of any interest on funds loaned to
the Orthodontic Entity by Premier in connection with the
operation of the Center, at an interest rate not in excess of
the Prime Rate plus one percent (1%);
(k) Advertising and other marketing expenses
attributable to the promotion of the Center and/or its
Orthodontist(s); and
(l) Other expenses incurred by Premier with the
consent of the Orthodontic Entity in carrying out its
obligations under this Agreement for the benefit of the Center
or the Orthodontic Entity; provided, however, that such
expenses shall not include Premier's home office overhead
expenses.
"Center Expenses" shall not include any federal or state
income taxes.
3.4 Additional Facilities. In the event the parties
agree to add an additional facility in which the Orthodontic Entity will
provide services, the Consulting Fee payable to Premier shall be determined by
dividing the Consulting Fee by the original number of facilities and adding an
amount equal to the pro rata share of such fee for one facility to the
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<PAGE> 9
Consulting Fee each year, which additional amount shall be prorated during the
year the additional facility is opened. As part of its strategic growth
strategy, Premier plans to provide capital support or arrange favorable funding
for orthodontic practice expansion and development. Any expenditures on
practice growth, acquisition or development shall be subject to approval by
Premier's Board of Directors.
IV. INSURANCE AND INDEMNITY
4.1 Insurance to be Maintained by the Orthodontic Entity.
Throughout the term of this Agreement, the Orthodontic Entity shall maintain
comprehensive professional liability insurance with limits of not less than
$500,000 per claim and with aggregate policy limits of not less than $1,000,000
per Orthodontist providing services at the Center and a separate limit for the
Orthodontic Entity or such other amounts required by the applicable state laws,
regulations, rules or directives. The Orthodontic Entity shall be responsible
for all such liabilities in excess of the limits of such policies. Premier
agrees to negotiate for and cause premiums to be paid with respect to such
insurance. Premiums and deductibles with respect to such policies shall be a
Center Expense.
4.2 Insurance to be Maintained by Premier. Throughout
the term of this Agreement, Premier will use reasonable efforts to provide and
maintain, as a Center Expense, comprehensive general liability and property
insurance covering the Center premises and operations.
4.3 Tail Insurance Coverage. The Orthodontic Entity will
cause each individual Orthodontist providing services at the Center to enter
into an agreement with the Orthodontic Entity that upon termination of such
Orthodontic Entity's relationship with the Orthodontist, for any reason, tail
insurance coverage for a period of three (3) years will be purchased by each
Orthodontist. Such provisions may be contained in employment agreements,
restrictive covenant agreements or other agreements entered into by the
Orthodontic Entity and the individual Orthodontists, and the Orthodontic Entity
hereby covenants with Premier to enforce such provisions relating to the tail
insurance coverage or to provide such coverage at the expense of the
Orthodontic Entity.
4.4 Additional Insureds. The Orthodontic Entity shall
have Premier named as an additional insured on the Orthodontic Entity's
professional liability insurance programs.
4.5 Indemnification. The Orthodontic Entity shall
indemnify, hold harmless and defend Premier, its officers, directors,
shareholders, members and employees, from and against any and all liabilities,
losses, damages, claims, causes of action, and expenses (including reasonable
attorneys' fees), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of the performance
of medical, dental or orthodontic services or the performance of any
intentional acts, negligent acts or omissions by the Orthodontic Entity and/or
its affiliates, shareholders, members, agents, employees and/or subcontractors
(other than Premier) prior to and after the date of this Agreement and
throughout the term hereof. Premier shall indemnify, hold
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<PAGE> 10
harmless and defend the Orthodontic Entity, and its directors, shareholders,
members and employees, from and against any and all liabilities, losses,
damages, claims, 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 Premier, a Premier Affiliate and/or their
members, shareholders, agents, employees and/or subcontractors (other than the
Orthodontic Entity) during the term of this Agreement.
V. TERM AND TERMINATION
5.1 Term of Agreement. This Agreement shall commence on
the date the Securities and Exchange Commission declares effective Premier's
registration Statement on Form S-1 for the sale of Premier's common stock or
membership interests in an initial public offering (the "IPO") and shall expire
on the twentieth (20th) anniversary thereof unless earlier terminated pursuant
to the terms hereof. In the event that Premier does not complete the IPO on or
before October 15, 1997, this Agreement shall be null and void and of no
further effect between the parties hereto.
5.2 Termination by the Orthodontic Entity. The
Orthodontic Entity 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 Premier, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by Premier, except for the filing of a
petition in involuntary bankruptcy against Premier which is dismissed within
thirty (30) days thereafter, the Orthodontic Entity may give written notice of
the immediate termination of this Agreement.
(b) In the event Premier 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 ninety (90) days after written
notice thereof has been given to Premier by the Orthodontic Entity (which
notice shall contain specific details of the reason for such default), the
Orthodontic Entity may terminate this Agreement; provided, however, if the
nature of such default is such that cure is not capable within said 90-day
period, then Premier shall have such additional time as may be required to
effect and complete such cure provided that Premier shall commence such cure
within the aforesaid 90-day period and shall prosecute such cure to completion
with reasonable diligence.
(c) In the event that the IPO has not been completed on
or before October 15, 1997, the Orthodontic Entity may terminate this
Agreement.
(d) In the event that a "Change in Control" (as herein
defined) occurs with respect to Premier, the Orthodontic Entity may, within 10
days after the expiration of the Approval Period (as herein defined), terminate
this Agreement by providing five (5) days prior written notice to Premier. For
purposes of this Section, "Change in Control" means an acquisition or
aggregation of any voting securities of Premier by a "person" (as defined in
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<PAGE> 11
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) immediately
after which such person is or becomes the beneficial owner, directly or
indirectly, of 15% or more of the combined voting power of Premier's then
outstanding voting securities; provided, however, that no acquisition or
aggregation of Premier's voting securities shall be deemed a "Change in
Control" if such acquisition or aggregation (i) has the prior approval of
Premier's board of directors, or (ii) is approved by Premier's board of
directors within 60 days after Premier receives notice of such acquisition or
aggregation (the "Approval Period").
5.3 Termination by Premier. Premier 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 Orthodontic
Entity, or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the Orthodontic
Entity, except for the filing of an involuntary petition in bankruptcy against
the Orthodontic Entity which is dismissed within thirty (30) days thereafter,
Premier may give written notice of the immediate termination of this Agreement.
(b) In the event the Orthodontic Entity 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 ninety (90) days
after written notice thereof has been given to the Orthodontic Entity by
Premier, Premier may terminate this Agreement.
(c) In the event that the IPO has not been completed on
or before October 15, 1997, Premier may terminate this Agreement.
5.4 Actions after Termination. Upon termination of this
Agreement by either party for any reason other than a default by the
Orthodontic Entity or upon expiration of this Agreement, the Orthodontic Entity
may, and upon termination of this Agreement by Premier due to the reasons set
forth in Section 5.3(b) hereof, the Orthodontic Entity shall:
(a) Purchase all improvements, additions or leasehold
improvements which have been made by Premier and which relate solely to the
performance of its obligations under this Agreement at adjusted book value;
(b) Assume all debt and all contracts, payables and
leases which are obligations of Premier and which relate solely to the
performance of its obligations under this Agreement or the properties subleased
by Premier; and
(c) Purchase from Premier at book value all of the
equipment of the Center, including all replacements and additions thereto made
by Premier pursuant to the performance of its obligations under this Agreement,
and all other assets, including inventory and supplies, tangibles and
intangibles (including but not limited to accounts receivable), set forth on
the balance sheet prepared for the month most recently ended prior to the date
of such termination in accordance with GAAP to reflect operations of the
Center, depreciation, amortization and other adjustments of assets shown on
such balance sheet.
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5.5 Closing of Repurchase by the Orthodontic Entity and
Effective Date of Termination. Unless another form of payment is agreed to by
USOC at such time, the Orthodontic Entity shall pay cash to USOC for (i) the
assets repurchased pursuant to Section 5.4 and (ii) an amount equal to the
Consulting Fee that would have been payable hereunder for services rendered to
patients by the Orthodontic Entity prior to the termination of this Agreement;
provided, however, that such cash Consulting Fee payment shall only be made as
payment for such services as are actually collected by the Orthodontic Entity.
The amount of the purchase price shall be reduced by the amount of debt and
liabilities of Premier assumed by the Orthodontic Entity and shall also be
reduced by any payment Premier has failed to make under this Agreement. The
Orthodontic Entity and any Orthodontist associated with the Orthodontic Entity
shall execute such documents as may be required to assume the liabilities set
forth in Section 5.4(c) and shall use its best efforts to remove Premier from
any liability with respect to such repurchased assets and with respect to any
property leased or subleased by Premier. The closing date for the repurchase
shall be determined by the Orthodontic Entity, but shall in no event occur
later than 180 days from the date of the notice of termination. The
termination of this Agreement shall become effective upon the closing of the
sale of the assets and the Orthodontic Entity and Premier shall be released
from the restrictive covenants provided for in Section 2.9 on the closing date.
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.
5.6 Patient Records. Upon termination of this Agreement,
the Orthodontic Entity shall retain all patient medical records maintained by
the Orthodontic Entity or Premier in the name of the Orthodontic Entity.
During the term of this Agreement, and thereafter, the Orthodontic Entity or
its designee shall have reasonable access during normal business hours to the
Orthodontic Entity's and Premier's records, including, but not limited to,
records of collections, expenses and disbursements as kept by Premier in
performing Premier's obligations under this Agreement, and the Orthodontic
Entity may copy any or all such records.
VI. INDEPENDENT CONTRACTOR
6.1 Orthodontic Entity's Control Over the Orthodontic
Practice. Notwithstanding the authority granted to Premier herein, Premier and
the Orthodontic Entity agree that the affiliated Orthodontist, personally or
through any of his professional employees or agents, shall have complete
control and supervision over the business aspects of the Orthodontic Entity'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
Orthodontist(s). The Orthodontist(s) shall have sole authority to direct the
business, professional, and ethical aspects of the orthodontic practice.
Premier will have no authority, directly or indirectly, to perform, and will
not perform, any orthodontic function, or to influence or otherwise interfere
with the exercise of the Orthodontist(s) professional judgment. Premier may,
however, advise the Orthodontic Entity
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as to the relationship between its performance of orthodontic functions and the
overall administrative and business functions of its practice.
6.2 Independent Relationship. The Orthodontic Entity and
Premier intend to act and perform as independent contractors, and the
provisions hereof are not intended to create any partnership, joint venture,
agency or employment relationship between the parties. The Orthodontic Entity
will not have any claim under this Agreement, or otherwise, against Premier for
vacation pay, sick leave, unemployment insurance, worker's compensation,
disability benefits or employee benefits of any kind.
6.3 Other Professionals. No provision of this Agreement
is intended to limit Premier's right, authority, or ability under applicable
law to contract with other dentists or physicians, or to employ, contract with,
or enter into any partnership or joint venture with any healthcare
professional, provided that the exercise of such right, authority or ability
does not contravene the terms of this Agreement.
6.4 Patient Care. Nothing in this Agreement is intended
to interfere, or shall be construed as interfering, in any way with the
Orthodontist(s)'s ability to independently exercise professional and ethical
judgment in the performance of his patient care responsibilities.
VII. GENERAL PROVISIONS
7.1 Assignment. This Agreement shall be assignable by
Premier to (i) any person, firm or corporation that controls or is under common
control with Premier, (ii) US Orthodontic Care, Inc. ("USOC") or any person,
firm or corporation that controls or is under common control with USOC, or
(iii) any entity that results from a merger or other combination between
Premier and USOC ("Newco") and any person, firm or corporation that controls or
is under common control with Newco. Except as set forth above, neither Premier
nor the Orthodontic Entity shall have the right to assign their respective
rights and obligations hereunder without the written consent of the other
party, which consent shall not be unreasonably withheld. Subject to this
provision, this Agreement shall be binding upon the parties hereto, and their
successors and assigns.
7.2 Whole Agreement; Modification. There are no other
agreements or understandings, written or oral, between the parties regarding
this Agreement, the Exhibits and the Schedules, other than as set forth herein.
This Agreement shall not be modified or amended except by a written document
executed by both parties to this Agreement, and such written modification(s)
shall be attached hereto.
7.3 Notices. All notices required or permitted by this
Agreement shall be in writing and shall be addressed as follows:
To Premier: Premier Orthodontic Group, Inc.
23848 Hawthorne Boulevard, Suite 200
Torrance, California 90505
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Attn: Mr. Sam Westover, Chief Executive Officer
Telecopier: (310) 791-5660
Telephone: (310) 791-5657
With a copy to: Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attn: Paul A. Quir#s, Esquire
To the ____________________________________
Orthodontic Entity:
or to such other address as either party shall notify the other.
7.4 Waiver of Provisions. Any waiver of any terms and
conditions hereof must be in writing, and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
7.5 Governing Law. The validity, interpretation and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of California. The parties acknowledge that Premier
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 Premier 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 Premier shall be deemed waived and forever unenforceable and
the provision of Section 7.12 shall be applicable.
7.6 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.
7.7 Compliance with Applicable Laws. Both parties shall
comply with all applicable federal, state and local laws, regulations and
restrictions in the conduct of their obligations under this Agreement.
7.8 Severability. In the event that any provision of
this Agreement or the application thereof to any of the parties hereto or any
circumstance in any jurisdiction governing this Agreement shall, to any extent,
be invalid or unenforceable under any applicable statute, regulation or rule of
law, then such provision shall be deemed inoperative
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<PAGE> 15
to the extent that it may conflict herewith and shall be deemed modified to
conform to such statute, regulation or rule of law, and the remainder of this
Agreement and the application of any such invalid or unenforceable provision to
parties, jurisdictions or circumstances other than to whom or to which it is
held invalid or unenforceable shall not be affected thereby nor shall the same
affect the validity or enforceability of any other provision of this Agreement.
7.9 Additional Documents. Each of the parties hereto
agrees to execute any document or documents that may be requested from time to
time by the other party to implement or complete such party's obligations
pursuant to this Agreement.
7.10 Attorneys' Fees. If legal action is commenced by
either party to enforce or defend its rights under this Agreement, the
prevailing party in such action shall be entitled to recover its costs and
reasonable attorneys' fees in addition to any other relief granted.
7.11 Confidentiality. Neither 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
(past, present or future) that was obtained by the other in the course of the
negotiation of this Agreement or in the course of the performance of this
Agreement, without the other party's 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.
7.12 Contract Modifications for Prospective Legal Events.
In the event any state or federal laws or regulations, 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 or regulations, the Orthodontic Entity and Premier shall
amend this Agreement as necessary. To the maximum extent possible, any such
amendment shall preserve the underlying economic and financial arrangements
between the Orthodontic Entity and Premier.
7.13 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.
7.14 Language Construction. The language in all parts of
this Agreement shall be construed, in all cases, according to the parties'
intent and the parties hereto 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.
7.15 No Obligation to Third Parties. None of the
obligations and duties of Premier or the Orthodontic Entity under this
Agreement shall in any way or in any manner
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<PAGE> 16
be deemed to create any obligation of Premier or of the Orthodontic Entity to,
or any rights in, any person or entity not a party to this Agreement.
7.16 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same Agreement.
7.17 Singular and Plural; Gender. Where the context so
requires or permits, the use of the singular form includes the plural, and the
use of the plural form includes the singular, and the use of any gender
includes any and all genders.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
ORTHODONTIC ENTITY:
------------------------------------------
By:
Name
Title:
PREMIER:
PREMIER ORTHODONTIC GROUP, INC.
By:
Name:
Title:
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<PAGE> 17
SCHEDULE 10.5
OrthAlliance has succeeded to the rights to agreements substantially
identical to Exhibit 10.5 as follows:
1. Consulting and Business Services Agreement with Randall K. Bennett, D.D.S.,
M.S., P.C. A material detail in which this agreement differs from Exhibit
10.5 is that the Consulting Fee paid pursuant to Section 3.1 is $340,000.
2. Consulting and Business Services Agreement with Frederick A. Ghiz, D.D.S.,
M.S., P.C. A material detail in which this agreement differs from Exhibit
10.5 is that the Consulting Fee paid pursuant to Section 3.1 is $71,999.
3. Consulting and Business Services Agreement with Gregg G. Hipple, D.D.S.,
M.S., Ltd. A material detail in which this agreement differs from Exhibit
10.5 is that the Consulting Fee paid pursuant to Section 3.1 is $268,473.
<PAGE> 1
EXHIBIT 10.6
ORTHALLIANCE, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK PLAN
<PAGE> 2
ORTHALLIANCE, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless
the context clearly indicates to the contrary:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Change in Control" shall mean the occurrence of either of the
following events:
(a) any of the following events:
(i) the dissolution or liquidation of the
Company; or
(ii) a reorganization, merger or consolidation of
the Company with one or more other
corporations (except with respect to a
transaction, the sole purpose of which is to
change the domicile or name of the Company),
as a result of which the Company ceases to
exist or becomes a subsidiary of another
corporation (which shall be deemed to have
occurred if another corporation shall own,
directly or indirectly, more than fifty
percent (50%) of the aggregate voting power
of all outstanding equity securities of the
Company); or
(iii) a sale of all or substantially all of the
Company's assets; or
(b) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than any person
who is a stockholder of the Company on or before the
effective date of the Plan, by the acquisition or
aggregation of securities is or becomes the
beneficial owner, directly or indirectly, of
securities of the Company representing fifty percent
(50%) or more of the combined voting power of the
Company's then outstanding securities ordinarily (and
apart from rights accruing under special
circumstances) having the right to vote at elections
of Directors (the "Base Capital Stock"); except that
any change in the relative beneficial ownership of
the Company's securities by any person resulting
solely from a reduction in the aggregate number of
outstanding shares of Base Capital Stock, and any
decrease thereafter in such person's ownership of
securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such
person's beneficial ownership of any securities of
the Company.
<PAGE> 3
1.3 "Code" shall mean the Internal Revenue Code of 1986, as
amended, including effective date and transition rules (whether or not
codified). Any reference herein to a specific section of the Code shall be
deemed to include a reference to any applicable corresponding provision of
future law.
1.4 "Company" shall mean OrthAlliance, Inc., a Delaware
corporation.
1.5 "Director" shall mean a member of the Board.
1.6 "Disabled Optionee" shall mean an Optionee who suffers a
Disability.
1.7 "Disability" shall mean shall mean a physical or mental
infirmity which impairs an Optionee's ability to substantially perform his
duties with the Company for a period of 180 consecutive days, as determined by
an independent physician selected by agreement between the Company and the
Optionee or, failing such agreement, selected by two physicians (one of which
shall be selected by the Company and the other by the Optionee).
1.8 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended. Any reference herein to a specific section of the Exchange Act shall
be deemed to include a reference to any applicable corresponding provision of
future law.
1.9 "Exercise Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement, determined in
accordance with Section 5.3 of this Plan.
1.10 "Fair Market Value" on any date shall mean (i) the average
closing sales price of the Stock on the national securities exchange having the
greatest volume of trading in the Stock during the five (5) trading days
preceding such date; (ii) if the Stock is not traded on any national securities
exchange, the average of the closing bid prices of the Stock on the
over-the-counter market for the five (5) trading days preceding the date such
value is to be determined; or (iii) if the Stock is not traded on a national
securities exchange or an over-the-counter market, the fair market value as
determined in good faith by the Board based on such relevant facts as may be
available, including, without limitation, the price at which recent sales of
Stock have been made, the book value of the Stock and the Company's current and
future earnings.
1.11 "Non-Employee Director" shall mean a member of the Board who
is considered a "non-employee director" as such term is defined in Rule 16b-3.
1.12 "Option" shall mean the right and option to purchase Stock
granted pursuant to the provisions of Article V hereof.
1.13 "Optionee" shall mean a person to whom an Option has been
granted hereunder or his or her permitted assign.
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<PAGE> 4
1.14 "Plan" shall mean the OrthAlliance, Inc. 1997 Non-Employee
Director Stock Plan, the terms of which are set forth herein.
1.15 "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act, as the same may be in effect or set forth from time to time.
1.16 "Stock" shall mean the Class A Common Stock, $.001 par value
per share, of the Company, subject to the antidilution provisions of Section 4.2
of this Plan.
1.17 "Stock Option Agreement" shall mean a written agreement
between the Company and an Optionee under which the Optionee may purchase Stock
hereunder, in substantially the form attached hereto.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "OrthAlliance, Inc. 1997
Non-Employee Director Stock Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests
of the Company, its subsidiaries and its stockholders by affording the
Non-Employee Directors of the Company an opportunity to acquire or increase
their proprietary interests in the Company. The objective of the Plan is to (i)
attract able persons to serve as Non-Employee Directors of the Company and (ii)
promote the growth and profitability of the Company and its subsidiaries by
providing Optionees with an additional incentive to achieve the Company's
objectives through participation in its success and growth and by encouraging
their continued association with or service to the Company.
2.3 Effective Date. The effective date of this Plan is May 13,
1997, subject to stockholder approval of the Plan on or before the next annual
meeting of the Company's stockholders.
2.4 Participants. All Non-Employee Directors of the Company shall
participate in the Plan.
ARTICLE III
ADMINISTRATION
3.1 Self-Governing Plan. This Plan shall be self-governing and
provides for automatic grants of Options in accordance with the provisions of
Article V hereof. This Plan is intended to be a "formula plan" within the
meaning of Note 3 to Rule 16b-3 and the Board shall have no discretion as to (i)
the selection of persons to whom Options are to be granted, (ii) the timing
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<PAGE> 5
of such grants, (iii) the number of shares subject to any Option, (iv) the
Exercise Price of any Option, (v) the period(s) during which any Option may be
exercised or (vi) the expiration date of any Option.
3.2 Interpretation; Rules. Subject to Sections 3.1 and 7.1 and the
other provisions of the Plan, the Board shall have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it and to make all other determinations necessary or advisable for
the administration of the Plan, including, without limitation, amending or
altering the Plan as may be required to comply with or to conform to any
federal, state or local laws or regulations.
3.3 No Liability. No Director shall be liable to any person for
any act or determination made in good faith with respect to the Plan or any
Option granted hereunder.
ARTICLE IV
SHARES OF STOCK SUBJECT TO PLAN
4.1 Limitations. Subject to adjustment pursuant to the
antidilution provisions of Section 4.2 hereof, the maximum number of shares of
Stock that may be issued hereunder shall be Two Hundred Thousand (200,000).
Shares of Stock subject to an Option may be either authorized and unissued
shares or shares issued and later acquired by the Company. The shares covered by
any unexercised portion of an Option that has terminated for any reason (except
as set forth in the following paragraph) may again be optioned under this Plan,
and such shares shall not be considered as having been optioned or issued in
computing the number of shares of Stock remaining available for Options
hereunder.
4.2 Antidilution.
(a) If (i) the outstanding shares of Stock are increased,
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of merger (excluding mergers of
orthodontic practices with and into the Company), consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend (excluding the conversion of the Company's Class B
Common Stock into shares of Stock as set forth in the Company's Amended and
Restated Certificate of Incorporation), (ii) any spin-off, split-off or other
distribution of assets materially affects the price of the Company's stock, or
(iii) there is any assumption and conversion to this Plan by the Company of an
acquired company's outstanding option grants, then:
(A) the aggregate number and kind of shares of Stock for which
Options may be granted hereunder shall be adjusted appropriately by the
Board; and
(B) the rights of Optionees (concerning the number of shares
of Stock subject to Options and the Exercise Price) under outstanding
Options shall be adjusted appropriately by the Board.
- 4 -
<PAGE> 6
(b) If not provided in a Stock Option Agreement to the
contrary, if a Change in Control occurs, the Board, in its discretion, may
provide:
(i) notwithstanding other provisions hereof, that all
Options granted under this Plan shall become exercisable
immediately, notwithstanding the provisions of the respective
Stock Option Agreements regarding exercisability, and that all
such Options shall terminate ninety (90) days after the Board
gives written notice of the immediate right to exercise all
such Options and of the decision to terminate all Options not
exercised within such 90-day period; or
(ii) notice to all Optionees that all Options granted
under this Plan shall be assumed by the successor corporation
or substituted on an equitable basis with options issued by
such successor corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a Change in Control, the provisions of Section 4.2(b) shall
apply. In all other instances, the adoption of a plan of dissolution or
liquidation of the Company shall, notwithstanding other provisions hereof, cause
all then-remaining restrictions pertaining to Options under the Plan to lapse,
and shall cause every Option outstanding under the Plan to terminate to the
extent not exercised prior to the adoption of the plan of dissolution or
liquidation by the stockholders; provided, however, that, notwithstanding any
other provisions hereof, the Board may declare all Options granted under the
Plan to be exercisable at any time on or before the fifth (5th) business day
following such adoption, notwithstanding the provisions of the respective Stock
Option Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through
(c) of this Section 4.2, and the manner of their application, shall be
determined solely by the Board, and any such adjustment may provide for the
elimination of fractional share interests. The adjustments required under this
Article IV shall apply to any successors of the Company and shall be made
regardless of the number or type of successive events requiring such
adjustments.
ARTICLE V
OPTIONS
5.1 Types of Options Granted. All Options granted under this Plan
shall be non-qualified stock options (i.e., stock options which do not qualify
as incentive stock options under Sections 422 and 423 of the Code).
5.2 Option Grants. Automatic grants of Options shall be made as
follows:
(a) An initial grant of an Option to purchase 5,000
shares of Stock shall be made to each Non-Employee Director on the date he or
she is initially elected or appointed to the Board as a Non-Employee Director;
and
- 5 -
<PAGE> 7
(b) Commencing in 1998, and continuing each year
thereafter as long as Stock is available for grant pursuant to this Plan, an
annual grant of an Option to purchase 5,000 shares of Stock shall be made on the
date of the annual meeting of the Company's stockholders to each Non-Employee
Director who continues as such following such annual meeting.
5.3 Exercise Price. The Exercise Price of the Stock subject to
each Option shall be equal to: (i) for initial grants, 100% of the Fair Market
Value of the Company's Stock on the date of the Non-Employee Director's election
or appointment as a Director or the initial public offering price for options
granted before the effective date of the Company's initial offering of shares of
Stock; and (ii) for annual grants, 100% of the Fair Market Value of the
Company's Stock on the date of the annual meeting of stockholders relating
thereto.
5.4 Exercise Period. Each Option shall vest and become exercisable
on the first anniversary of the grant date of the Option and shall terminate and
cease to be exercisable after the expiration of ten (10) years from the grant
date of the Option (the "Exercise Period"). No Option shall be exercisable prior
to the expiration of six (6) months from the grant date of such Option, other
than in the case of the death or Disability of the Optionee.
5.5 Stock Option Agreement; Copy of Plan. Each Option granted
hereunder shall be evidenced by a written Stock Option Agreement executed by the
Company and the Optionee in substantially the form attached hereto. The terms of
the Option, including the Exercise Period and Exercise Price, shall be stated in
the Stock Option Agreement. Every Optionee shall be given a copy of the Plan.
5.6 Termination of Service; Death or Disability. In the event an
Optionee ceases to be a Director by reason of his or her death or Disability,
the Optionee or the Optionee's, heirs, administrators, executors or personal
representatives may exercise the Optionee's Options, to the extent such Options
are vested and purchasable on the date of such death or Disability, at any time
prior to the earlier of (i) the last day of the one year period following the
Optionee's death or the beginning of the Optionee's Disability or (ii) the
expiration of the Optionee's Options.
5.7 Termination of Service; Other. In the event an Optionee ceases
to be a Director for any reason other than his or her death or Disability, the
Optionee (or his or her personal representative) may exercise his or her
Options, to the extent such Options are vested and purchasable on the date of
termination, at any time prior to the earlier of (i) the last day of the one
year period following the date the Optionee ceases to be a Director or (ii) the
expiration of the Optionee's Options.
5.8 Option Exercise.
(a) An Option may be exercised at any time or from time
to time during the Exercise Period as to any or all full shares which are
subject to the Option, but not at any time as to less than one hundred (100)
shares unless the remaining vested shares purchasable under the Option are less
than one hundred (100) shares.
- 6 -
<PAGE> 8
(b) An Option shall be exercised by (i) delivery to the
Company at its principal office of a written notice of exercise with respect to
a specified number of shares of Stock and (ii) payment to the Company at that
office of the full amount of the Exercise Price for such number of shares in
accordance with Section 5.8(c). If requested by an Optionee, an Option may be
exercised with the involvement of a stockbroker in accordance with the federal
margin rules set forth in Regulation T (in which case the certificates
representing the underlying shares will be delivered by the Company directly to
the stockbroker).
(c) The Exercise Price is to be paid in full in cash by a
certified or cashier's check payable to the Company upon the exercise of the
Option and the Company shall not be required to deliver certificates for the
shares purchased until such payment has been made. In lieu of cash, (i) all or
any portion of the Exercise Price may be paid by tendering to the Company shares
of Stock duly endorsed for transfer and owned by the Optionee, or by
authorization to the Company to withhold shares of Stock otherwise issuable upon
exercise of the Option, in each case to be credited against the Exercise Price
at the Fair Market Value of such shares on the date of exercise (however, no
fractional shares may be so transferred, and the Company shall not be obligated
to make any cash payments in consideration of any excess of the aggregate Fair
Market Value of shares transferred over the aggregate Exercise Price); or (ii)
full payment may be effected through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate Exercise Price
(plus all applicable Federal and State income and employment taxes required to
be withheld by the Company by reason of such purchase) and (B) shall provide
written directives to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
(d) In addition to and at the time of payment of the
Exercise Price, the Company may withhold, or require the Optionee to pay to the
Company in cash, the amount of any federal, state and local income, employment
or other withholding taxes which the Company determines are required to be
withheld under federal, state or local law in connection with the exercise of an
Option; provided, however, that all or any portion of such tax obligations may,
upon the election of the Optionee, be paid by tendering to the Company whole
shares of Stock duly endorsed for transfer and owned by the Optionee, or by
authorization to the Company to withhold shares of Stock otherwise issuable upon
exercise of the Option, in either case in that number of shares having a Fair
Market Value on the date of exercise equal to the amount of such taxes thereby
being paid.
(e) The holder of an Option shall not have any of the
rights of a stockholder with respect to the shares of Stock subject to the
Option until such shares have been issued and transferred to the Optionee upon
the exercise of the Option.
(f) Notwithstanding anything to the contrary herein or in
a Stock Option Agreement, a given Option shall not be exercisable to the extent
the exercise thereof would cause the Company to be a reporting company under the
Exchange Act.
- 7 -
<PAGE> 9
5.9 Nontransferability of Option. No Option shall be transferable
by an Optionee other than by will or the laws of descent and distribution.
During the lifetime of an Optionee, Options shall be exercisable only by such
Optionee (or by such Optionee's guardian or legal representative, should one be
appointed).
5.10 Service Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue as a Director of the
Company, or shall interfere in any way with the right of the stockholders of the
Company to terminate such person's service as a Director at any time.
ARTICLE VI
STOCK CERTIFICATES
6.1 Certificates. The Company shall not be required to issue or
deliver any certificate for shares of Stock purchased upon the exercise of any
Option granted hereunder or any portion thereof, prior to fulfillment of all of
the following conditions:
(a) The authorization to list such shares on all stock
exchanges or over-the-counter markets on which the Stock is then listed or
quoted;
(b) The completion of any registration or other
qualification of such shares which the Board shall deem necessary or advisable
under any federal or state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency or body which the Board shall determine
to be necessary or advisable; and
(d) The lapse of such reasonable period of time following
the exercise of the Option as the Board from time to time may establish for
reasons of administrative convenience.
6.2 Legends. Stock certificates issued and delivered to Optionees
shall bear such restrictive legends as the Company shall deem necessary or
advisable pursuant to applicable federal and state securities laws.
ARTICLE VII
TERMINATION AND AMENDMENT OF PLAN
7.1 Termination and Amendment. The right to amend the Plan at any
time and from time to time and the right to terminate the Plan at any time are
hereby specifically reserved to the Board, provided always that no such
termination shall terminate any outstanding Options granted under the Plan and
provided further that no amendment to the Plan shall (i) be made without
stockholder approval if stockholder approval of the amendment is at the time
required for Options under the Plan to qualify for the exemption from Section 16
of the Exchange Act provided by Rule 16b-3, or any successor rule, or by the
rules of any stock exchange or over-
- 8 -
<PAGE> 10
the-counter market on which the Stock may then be listed, or (ii) otherwise
amend the Plan in any manner that would cause Options under the Plan not to
qualify for the exemption provided by Rule 16b-3, or any successor rule. No
amendment or termination of the Plan shall, without the written consent of the
holder of an outstanding Option awarded under the Plan, adversely affect the
rights of such Optionee with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any
other provision of the Plan or any Stock Option Agreement, the Board shall have
the power to amend the Plan in any manner deemed necessary or advisable for
Options granted under the Plan to qualify for the exemption provided by Rule
16b-3 (or any successor rule relating to exemption from Section 16(b) of the
Exchange Act). Any such amendment shall, to the extent deemed necessary or
advisable by the Board, be applicable to any outstanding Options granted under
the Plan notwithstanding any contrary provisions contained in any Stock Option
Agreement. In the event of any such amendment of the Plan, the holder of any
Option shall, upon request by the Board and as a condition to the exercisability
of such Option, execute a conforming amendment in a form prescribed by the Board
to his or her Stock Option Agreement within such reasonable time as the Board
shall specify in such request.
ARTICLE VIII
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
subsidiaries.
ARTICLE IX
MISCELLANEOUS
9.1 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
9.2 Singular, Plural; Gender. Whenever used herein, nouns in the
singular shall include the plural and the masculine pronoun shall include the
feminine gender and vice versa.
9.3 Headings Not Part of Plan. Headings of Articles and Sections
hereof are inserted for convenience and reference and do not constitute part of
the Plan.
9.4 Interpretation. All transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 or its successors under
the Exchange Act.
- 9 -
<PAGE> 11
9.5 Governing Law. This Plan shall be governed by, and construed
in accordance with, the laws of the State of Delaware without regard to
conflicts of laws principles.
* * * *
- 10 -
<PAGE> 12
OrthAlliance, Inc.
1997 Non-Employee Director Stock Plan
Form of Stock Option Agreement
ORTHALLIANCE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
_____ day of ________________, 1997 by and between OrthAlliance, Inc., a
Delaware corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, on May 13, 1997, the Board of Directors of the Company adopted
a stock option plan known as the "OrthAlliance, Inc. 1997 Non-Employee Director
Stock Plan" (the "Plan") and recommended that the Plan be approved by the
Company's stockholders; and
WHEREAS, on August 11, 1997, the stockholder of the Company approved
the Plan; and
WHEREAS, Optionee has been granted an Option (as defined below) to
purchase five thousand (5,000) shares of the Company's Class A Common Stock, par
value $.001 per share (the "Stock") and the Company and the Optionee desire to
enter into a written agreement with respect to the Option in accordance with the
Plan.
NOW, THEREFORE, as an incentive to serve as a Non-Employee Director of
the Company and to encourage stock ownership, and also in consideration of the
mutual covenants contained herein, the parties hereto agree as follows:
1. Incorporation of Plan. This Option is granted pursuant to the
provisions of the Plan and the terms and conditions of the Plan are incorporated
herein by reference and made a part hereof. A copy of the Plan has been
delivered to, and receipt is hereby acknowledged by, the Optionee.
Notwithstanding anything in this Agreement to the contrary, to the extent the
terms of this Agreement conflict with or otherwise attempt to exceed the
authority set forth under the Plan, the Plan shall govern and control in all
respects. Unless otherwise defined herein, capitalized terms used in this
Agreement shall have the meanings given such terms in the Plan.
2. Grant of Option. Subject to the terms, restrictions, limitations,
and conditions stated herein and the terms of the Plan, the Company hereby
evidences its grant to the Optionee of the right and option (the "Option") to
purchase all or any part of five thousand (5,000) shares of Stock.
3. Vesting Date. The Option shall vest and become exercisable upon the
first anniversary of the date the Option is granted under Section 5.2(a) or (b)
of the Plan (the "Grant Date").
<PAGE> 13
4. Expiration Date. The Option shall expire and shall cease to be
exercisable after the expiration of ten (10) years from the Grant Date. In the
event this Option is not exercised with respect to all or any part of the shares
of Stock subject to this Option prior to its expiration, the shares with respect
to which this Option has not been exercised shall no longer be subject to
Section 5.3 of this Option.
5. Exercise Price. The price per share to be paid by the Optionee for
the shares of stock subject to this Option (the "Exercise Price") shall be
determined in accordance with the Plan and specified on Schedule A.
6. Restrictions on Transferability. No Option shall be transferable by
Optionee other than by will or the laws of descent and distribution. During the
lifetime of Optionee, Options shall be exercisable only by Optionee (or by
Optionee's guardian or legal representative, should one be appointed).
7. Notice of Exercise of Option. This Option may be exercised by the
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 15(c) hereof to the attention of the
President, Vice President, General Counsel or such other officer as the Company
may designate. Any such notice shall (a) specify the number of shares of Stock
which the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, then elects to purchase hereunder, (b)
contain such information as may be reasonably required pursuant to Section 13
hereof, and (c) be accompanied by (i) a certified or cashier's check payable to
the Company in payment of the total Exercise Price applicable to such shares as
provided herein, (ii) shares of Stock owned by the Optionee and duly endorsed or
accompanied by stock transfer powers having a Fair Market Value equal to the
total Exercise Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied by the number of shares of Stock whose
Fair Market Value when added to the amount of the check equals the total
Exercise Price applicable to such shares purchased hereunder, or (iv) payment
through a broker-dealer sale and remittance procedure pursuant to which Optionee
shall provide irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Company, out
of the sale proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price (plus all applicable Federal and State income and
employment taxes required to be withheld by the Company by reason of such
exercise) and written directives to the Company to deliver the certificates for
the purchased shares directly to such brokerage firm in order to complete the
sale transaction. Upon receipt of any such notice and accompanying payment, and
subject to the terms hereof, the Company agrees to issue to the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, stock certificates for the number of shares specified in such notice
registered in the name of the person exercising this Option.
8. Adjustment in Option. The number of shares of Stock subject to this
Option, the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with the Plan.
- 2 -
<PAGE> 14
9. Service as a Director. Nothing in this Stock Option Agreement shall
confer upon the Optionee any right with respect to continuance of service as a
Director of the Company, or shall interfere in any way with the right of the
stockholders of the Company to terminate such person's service as a Director at
any time.
10. Termination of Service as a Director. In the event of the
termination of the Optionee's service as a Director for any reason other than
his or her death or Disability, the Optionee (or his or her personal
representative) may exercise this Option, to the extent such Option is vested
and purchasable on the date of termination, at any time prior to the earlier of
(i) the last day of the one year period following the date the Optionee ceases
to be a Director or (ii) the expiration of the Optionee's Option.
11. Disabled Optionee. In the event of termination of service as a
Director of the Company because of the Optionee's becoming a Disabled Optionee,
the Optionee (or his or her legal representative) may exercise this Option, to
the extent such Option is vested and purchasable on the date of termination, at
any time prior to the earlier of (a) the last day of the one year period
following the beginning of the Optionee's Disability or (b) the expiration date
of this Option.
12. Death of Optionee. In the event of the Optionee's death, the
Optionee's administrators, executors or personal representatives or persons to
whom all or a portion of this Option is transferred in accordance with Section 6
hereof may exercise this Option at any time prior to the earlier of (a) the last
day of the one year period following the Optionee's death or (b) the expiration
date of this Option. If the Optionee was a Director of the Company at the time
of death, this Option may be so exercised to the extent of the number of shares
that were vested and purchasable hereunder at the date of death. If the
Optionee's service as a Director of the Company terminated prior to his or her
death, this Option may be exercised only to the extent of the number of shares
covered by this Option which were vested and purchasable hereunder at the date
of such termination.
13. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of Stock of the Company is subject to limitations imposed by
federal and state law and the Optionee hereby agrees that the Company shall not
be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate law or any rule, regulation, order or consent
decree of any regulatory authority (including without limitation the Securities
and Exchange Commission) having jurisdiction over the affairs of the Company.
The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 13.
14. Investment Representation of Optionee.
(a) Optionee represents to the Company the following: (i) that
Optionee has read and understands the terms and provisions of the Plan, and
hereby accepts this Agreement subject to all the terms and provisions of the
Plan; and (ii) Optionee understands that, unless at the time of exercise of the
Option, a registration statement under the Securities Act of 1933, as amended,
- 3 -
<PAGE> 15
is in effect covering the Stock, as a condition to the exercise of the Option
the Company may require Optionee to represent that Optionee is acquiring the
Stock for Optionee's own account only and not with a view to, or for sale in
connection with, any distribution of the Stock.
(b) The Optionee understands and agrees that the certificate or
certificates representing any shares of Stock acquired hereunder may bear an
appropriate legend relating to registration and resale under federal and state
securities laws.
(c) The Optionee shall not have any rights of a stockholder of
the Company with respect to the shares of Stock which may be purchased upon
exercise of this Option, unless and until such shares shall have been issued and
delivered and his/her name has been entered as a stockholder on the stock
transfer records of the Company.
15. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and
their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Delaware, without regard to conflicts of
laws principles.
(c) Any notice, request, document or other communication given
hereunder shall be deemed to be sufficiently given upon personal delivery to the
other party or upon the expiration of three (3) days after depositing same in
the United States mail, return receipt requested, properly addressed to the
respective parties or such other address as they may give to the other party in
writing in the same manner as follows:
Company: OrthAlliance, Inc.
23848 Hawthorne Blvd., Suite 200
Torrance, California 90505
Attention: Senior Vice President, General Counsel
Optionee:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
(d) This Agreement may not be modified except in writing
executed by each of the parties hereto.
(e) This Agreement, together with the Plan, contains the entire
understanding of the parties hereto and supersedes any prior understanding
and/or written or oral agreement between them respecting the subject matter
hereof.
- 4 -
<PAGE> 16
(f) The parties agree that the provisions of this Agreement are
severable and the invalidity or unenforceability of any provision in whole or
part shall not affect the validity or enforceability of any enforceable part of
such provision or any other provisions hereof.
(g) The headings with Sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
(h) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf and the Optionee has executed this Agreement, all as of
the day and year first above written.
COMPANY:
ORTHALLIANCE, INC.
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
OPTIONEE:
By:
-------------------------------
- 5 -
<PAGE> 17
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
ORTHALLIANCE, INC.
AND
[Name of Optionee]
Dated [Date of Agreement]
1. Number of Shares Subject to Option: Five Thousand (5,000) shares of
Stock.
2. Option Exercise Price: $ per share.
-----------------
3. Grant Date:
-------------------------
4. Option Vesting Schedule:
The Option shall vest and may be exercised at any time and from time to
time with respect to five thousand (5,000) shares of Stock on the first
anniversary of the Grant Date.
5. Option Expiration Date:
The Option shall expire and shall cease to be exercisable after the
expiration of ten (10) years from the Grant Date.
6. Change in Control.
Notwithstanding the vesting schedule and option expiration date set
forth above, upon a Change in Control, as defined in the Plan, all Options
granted hereunder shall become exercisable immediately upon the occurrence of
such Change in Control for a period of ninety (90) days after written notice to
Optionee of the right to such Options. Any Options not exercised within such
ninety (90) day period shall terminate after the expiration of such period.
<PAGE> 18
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
ORTHALLIANCE, INC.
AND
[Name of Optionee]
Dated [Date of Agreement]
NOTICE OF EXERCISE
The undersigned hereby notifies OrthAlliance, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ________________ shares of Stock (as defined under the Plan) pursuant
to the Stock Option Agreement (the "Agreement") between the undersigned and the
Company dated ________________. Accompanying this Notice is (1) a certified or a
cashier's check in the amount of $________________ payable to the Company,
and/or (2) _______________ shares of Stock (as defined under the Plan) presently
owned by the undersigned and duly endorsed or accompanied by stock transfer
powers, having an aggregate Fair Market Value (as defined under the Plan) as of
the date hereof of $__________________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 5 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 8 of the
Agreement), and/or (3) evidence of a cashless exercise as set forth in Section 7
of the Agreement.
The undersigned is a resident of the State of .
IN WITNESS WHEREOF, the undersigned has set his/her hand and
seal, this ________ day of ________________, ______.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
---------------------------------------
Name:
----------------------------------
Position (if other than Optionee):
<PAGE> 1
EXHIBIT 10.7
ORTHALLIANCE, INC.
AMENDED AND RESTATED 1997 EMPLOYEE STOCK OPTION PLAN
<PAGE> 2
ORTHALLIANCE, INC.
AMENDED AND RESTATED 1997 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless
the context clearly indicates to the contrary:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Change in Control" shall mean the occurrence of either of the
following events:
(a) any of the following events:
(i) the dissolution or liquidation of the
Company; or
(ii) a reorganization, merger or consolidation of
the Company with one or more other
corporations (except with respect to a
transaction, the sole purpose of which is to
change the domicile or name of the Company),
as a result of which the Company ceases to
exist or becomes a subsidiary of another
corporation (which shall be deemed to have
occurred if another corporation shall own,
directly or indirectly, more than fifty
percent (50%) of the aggregate voting power
of all outstanding equity securities of the
Company); or
(iii) a sale of all or substantially all of the
Company's assets; or
(b) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than any person
who is a stockholder of the Company on or before the
effective date of the Plan, by the acquisition or
aggregation of securities is or becomes the
beneficial owner, directly or indirectly, of
securities of the Company representing fifty percent
(50%) or more of the combined voting power of the
Company's then outstanding securities ordinarily (and
apart from rights accruing under special
circumstances) having the right to vote at elections
of directors (the "Base Capital Stock"); except that
any change in the relative beneficial ownership of
the Company's securities by any person resulting
solely from a reduction in the aggregate number of
outstanding shares of Base Capital Stock, and any
decrease thereafter in such person's ownership of
securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such
person's beneficial ownership of any securities of
the Company.
<PAGE> 3
1.3 "Code" shall mean the Internal Revenue Code of 1986, as
amended, including effective date and transition rules (whether or not
codified). Any reference herein to a specific section of the Code shall be
deemed to include a reference to any applicable corresponding provision of
future law.
1.4 "Committee" shall mean a committee of at least two (2)
Directors appointed from time to time by the Board, having the duties and
authority set forth herein in addition to any other authority granted by the
Board; provided, however, that with respect to any Options granted to an
individual who is also a Section 16 Insider, the Committee shall consist of at
least two (2) Directors (who need not be members of the Committee with respect
to Options granted to any other individuals) who are Non-Employee Directors
(within the meaning of Rule 16b-3), and all authority and discretion shall be
exercised by such Non-Employee Directors, and references herein to the
"Committee" shall mean such Non-Employee Directors insofar as any actions or
determinations of the Committee shall relate to or affect Options made to or
held by any Section 16 Insider. At any time that the Board shall not have
appointed a committee as described above, any reference herein to the Committee
shall mean a reference to the Board.
1.5 "Company" shall mean OrthAlliance, Inc., a Delaware
corporation.
1.6 "Director" shall mean a member of the Board and any person who
is an advisory, honorary or emeritus director of the Company if such person is
considered a director for the purposes of Section 16 of the Exchange Act, as
determined by reference to such Section 16 and to the rules, regulations,
judicial decisions, and interpretative or "no-action" positions with respect
thereto of the Securities and Exchange Commission, as the same may be in effect
or set forth from time to time.
1.7 "Disabled Optionee" shall mean an Optionee who suffers a
Disability.
1.8 "Disability" shall mean shall mean a physical or mental
infirmity which impairs an Optionee's ability to substantially perform his
duties with the Company or a Subsidiary for a period of 180 consecutive days, as
determined by an independent physician selected by agreement between the Company
and the Optionee or, failing such agreement, selected by two physicians (one of
which shall be selected by the Company and the other by the Optionee); provided,
however, that "Disability" shall have the meaning set forth in Code Section
22(e)(3) and the regulations promulgated thereunder with respect to an Optionee
granted Incentive Stock Options.
1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended. Any reference herein to a specific section of the Exchange Act shall
be deemed to include a reference to any applicable corresponding provision of
future law.
1.10 "Exercise Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement.
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1.11 "Fair Market Value" on any date shall mean (i) the average
closing sales price of the Stock on such date on the national securities
exchange having the greatest volume of trading in the Stock during the thirty
(30) day period preceding such date or, if such exchange was not open for
trading on such date, the next preceding date on which it was open; (ii) if the
Stock is not traded on any national securities exchange, the average of the
closing high bid and low asked prices of the Stock on the over-the-counter
market on the date such value is to be determined, or in the absence of closing
bids on such date, the closing bids on the next preceding date on which there
were bids; or (iii) if the Stock is not traded on a national securities exchange
or the over-the-counter market, the fair market value as determined in good
faith by the Board or the Committee based on such relevant facts as may be
available, including, without limitation, the price at which recent sales of
Stock have been made, the book value of the Stock and the Company's current and
future earnings.
1.12 "For Cause" termination shall mean the termination of an
Optionee's employment as a result of: (i) any act that constitutes on the part
of the Optionee, fraud, dishonesty, gross malfeasance of duty, or conduct
grossly inappropriate to the Optionee's position of employment; or (ii) the
conviction (from which no appeal may be or is timely taken) of the Optionee of a
felony.
1.13 "Incentive Stock Option" shall mean an option to purchase
Stock of the Company which complies with and is subject to the terms,
limitations, and conditions of Section 422 of the Code and any regulations
promulgated with respect thereto.
1.14 "Officer" shall mean a person who constitutes an officer of
the Company for the purposes of Section 16 of the Exchange Act, as determined by
reference to such Section 16 and to the rules, regulations, judicial decisions,
and interpretative or "no-action" positions with respect thereto of the
Securities and Exchange Commission, as the same may be in effect or set forth
from time to time.
1.15 "Option" shall mean an option, including an Incentive Stock
Option, to purchase Stock granted pursuant to the provisions of Article hereof.
1.16 "Optionee" shall mean a person to whom an Option has been
granted hereunder or his permitted assign.
1.17 "Plan" shall mean the OrthAlliance, Inc. Amended and Restated
1997 Employee Stock Option Plan, the terms of which are set forth herein and
which completely amends and restates the OrthAlliance, Inc. 1997 Employee Stock
Option Plan.
1.18 "Purchasable" shall refer to Stock which may be purchased by
an Optionee under the terms of this Plan on or after a certain date specified in
an applicable Stock Option Agreement.
1.19 "Section 16 Insider" shall mean any person who is subject to
the provisions of Section 16 of the Exchange Act.
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1.20 "Stock" shall mean the Class A Common Stock, $.001 par value
per share, of the Company, subject to applicable provisions of Section 5.2.
1.21 "Stock Option Agreement" shall mean a written agreement
between the Company and an Optionee under which the Optionee may purchase Stock
hereunder, as provided in Article VI hereof.
1.22 "Subsidiary" shall mean any corporation in which the Company
directly or indirectly owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock of such corporation.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "OrthAlliance, Inc.
Amended and Restated 1997 Employee Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests
of the Company, its Subsidiaries and its stockholders by affording certain
officers and employees of the Company and its Subsidiaries an opportunity to
acquire or increase their proprietary interests in the Company. The objective of
the Options is to promote the growth and profitability of the Company and its
Subsidiaries by providing Optionees with an additional incentive to achieve the
Company's objectives through participation in its success and growth and by
encouraging their continued association with or service to the Company and its
Subsidiaries.
2.3 Effective Date. The effective date of this Plan is May 13,
1997, subject to stockholder approval of the Plan on or before May 13, 1998.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist
of all officers and employees of the Company or any Subsidiary whose
participation in the Plan the Committee determines to be in the best interests
of the Company.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. This Plan shall be
administered by the Committee. The Committee shall select one of its members as
its Chairman and shall hold its meetings at such times and places as it may
determine. The Committee shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it may deem necessary.
The Committee shall have the power to act by unanimous written consent in lieu
of a meeting, and to meet telephonically. In administering this Plan, the
Committee's actions and determinations shall be binding on all interested
parties. The Committee shall have the power to grant Options in accordance with
the provisions of this Plan. Subject to the
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provisions of this Plan, the Committee shall have the discretion and authority
to determine those persons to whom Options will be granted, the number of shares
of Stock subject to each Option, such other matters as are specified herein, and
any other terms and conditions of a Stock Option Agreement. To the extent not
inconsistent with the provisions of this Plan, the Committee may give an
Optionee an election to surrender an Option in exchange for the grant of a new
Option, and shall have the authority to amend or modify an outstanding Stock
Option Agreement or to waive any provision thereof, provided that the Optionee
consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of
the Plan, the Committee shall have complete authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, and to make all other
determinations necessary or advisable for the administration of the Plan,
including, without limitation, the amending or altering of the Plan and any
Options granted hereunder as may be required to comply with or to conform to any
federal, state or local laws or regulations.
4.3 No Liability. Neither any Director nor any member of the
Committee shall be liable to any person for any act or determination made in
good faith with respect to the Plan or any Option granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee
shall constitute a quorum, and any action taken by a majority at a meeting at
which a quorum is present, or any action taken without a meeting evidenced by a
writing executed by all the members of the Committee, shall constitute the
action of the Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant
to the provisions of Section hereof, the maximum number of shares of Stock that
may be issued hereunder shall be One Million (1,000,000). The amount of Stock
subject to the Plan may be increased from time to time in accordance with
Article VIII hereof; provided, however, that the total number of shares of Stock
issuable pursuant to Incentive Stock Options shall not exceed One Million
(1,000,000) (other than pursuant to antidilution adjustments) without
stockholder approval. Shares subject to an Option may be either authorized and
unissued shares or shares issued and later acquired by the Company. The shares
covered by any unexercised portion of an Option that has terminated for any
reason (except as set forth in the following paragraph) may again be optioned
under this Plan, and such shares shall not be considered as having been optioned
or issued in computing the number of shares of Stock remaining available for
Options hereunder.
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<PAGE> 7
If Options are issued in respect of options to acquire stock of any
entity acquired, by merger or otherwise, by the Company or any Subsidiary, to
the extent that such issuance shall not be inconsistent with the terms,
limitations and conditions of Code Section 422 (only with respect to Options
which are Incentive Stock Options) or Rule 16b-3 under the Exchange Act, the
aggregate number of shares of Stock for which Options may be granted hereunder
shall automatically be increased by the number of shares subject to the Options
so issued.
5.2 Antidilution.
(a) If (i) the outstanding shares of Stock are increased,
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of merger (excluding mergers of
orthodontic entities with and into the Company), consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend (excluding the conversion of the Company's Class B
Common Stock into shares of Stock as set forth in the Company's Amended and
Restated Certificate of Incorporation), (ii) any spin-off, split-off or other
distribution of assets materially affects the price of the Company's stock, or
(iii) there is any assumption and conversion to this Plan by the Company of an
acquired company's outstanding option grants, then:
(A) the aggregate number and kind of shares of Stock
for which Options may be granted hereunder shall be adjusted
appropriately by the Committee; and
(B) the rights of Optionees (concerning the number of
shares of Stock subject to Options and the Exercise Price)
under outstanding Options shall be adjusted appropriately by
the Committee.
(b) If not provided in a Stock Option Agreement to the
contrary, if a Change in Control occurs, the Committee, in its discretion, may
provide:
(i) notwithstanding other provisions hereof,
that all Options granted under this Plan shall become
exercisable immediately, notwithstanding the provisions of the
respective Stock Option Agreements regarding exercisability,
and that all such Options shall terminate ninety (90) days
after the Committee gives written notice of the immediate
right to exercise all such Options and of the decision to
terminate all Options not exercised within such 90-day period;
or
(ii) notice to all Optionees that all Options
granted under this Plan shall be assumed by the successor
corporation or substituted on an equitable basis with options
issued by such successor corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a Change in Control, the provisions of Section 5.2(b) shall
apply. In all other instances, the adoption of a plan of dissolution or
liquidation of the Company shall, notwithstanding other provisions hereof, cause
all then-remaining restrictions pertaining to Options under the Plan to lapse,
and shall cause every Option outstanding under the Plan to terminate to the
extent not exercised prior to the adoption of the plan of dissolution or
liquidation by the stockholders; provided, however,
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that, notwithstanding any other provisions hereof, the Committee may declare all
Options granted under the Plan to be exercisable at any time on or before the
fifth (5th) business day following such adoption, notwithstanding the provisions
of the respective Stock Option Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through
(c) of this Section 5.2, and the manner of their application, shall be
determined solely by the Committee, and any such adjustment may provide for the
elimination of fractional share interests; provided, however, that any
adjustment made by the Committee shall be made in a manner that will not cause
an Incentive Stock Option to be other than an Incentive Stock Option under
applicable statutory and regulatory provisions. The adjustments required under
this Article V shall apply to any successors of the Company and shall be made
regardless of the number or type of successive events requiring such
adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan,
grant either Incentive Stock Options or Options which do not qualify as
Incentive Stock Options. Within the limitations provided in this Plan, both
types of Options may be granted to the same person at the same time, or at
different times, under different terms and conditions, as long as the terms and
conditions of each Option are consistent with the provisions of this Plan.
Without limitation of the foregoing, Options may be granted subject to
conditions based on the financial performance of the Company or any other factor
the Committee deems relevant. Neither the Company, nor any Subsidiary or any
other person warrants or otherwise represents that (i) any Option granted under
this Plan shall be considered an Incentive Stock Option for applicable tax
purposes, or (ii) favorable or desirable tax treatment or characterization will
be applicable in respect of any Option or Stock.
6.2 Option Grant and Agreement. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written consent of the
Committee and by a written Stock Option Agreement executed by the Company and
the Optionee. The terms of the Option, including the Option's duration, time or
times of exercise and exercise price, shall be stated in the Stock Option
Agreement. No Incentive Stock Option may be granted more than ten (10) years
after the earlier to occur of the effective date of the Plan or the date the
Plan is approved by the Company's stockholders. Every Optionee shall be given a
copy of the Plan.
6.3 Optionee Limitations. The Committee shall not grant an
Incentive Stock Option to any person who, at the time the Incentive Stock Option
is granted:
(a) is not an employee of the Company or any of its
Subsidiaries; or
(b) owns or is considered to own stock possessing at
least 10% of the total combined voting power of all classes of stock of the
Company or any of its Subsidiaries (within the meaning of Code Sections 422 and
424); provided, however, that this limitation shall not apply if at the time an
Incentive Stock Option is granted the Exercise Price is at least 110% of
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the Fair Market Value of the Stock subject to such Option and such Option by its
terms would not be exercisable after five (5) years from the date on which the
Option is granted. For the purpose of this subsection (b), a person shall be
considered to own (i) the Stock owned, directly or indirectly, by or for his or
her brothers and sisters (whether by whole or half blood), spouse, ancestors and
lineal descendants; (ii) the stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust in proportion to such person's stock
interest, partnership interest or beneficial interest therein; (iii) the stock
which such person may purchase under any outstanding options of the Company or
of any Subsidiary; and (iv) or stock otherwise considered to be owned by such
person pursuant to Code Sections 422 and 424.
6.4 $100,000 Limitation. Except as provided below, the Committee
shall not grant an Incentive Stock Option to, or modify the exercise provisions
of, any outstanding Incentive Stock Option held by any person who, at the time
the fIncentive Stock Option is granted (or modified), would thereby receive or
hold any Incentive Stock Options of the Company and any Subsidiary, such that
the aggregate Fair Market Value (determined as of the respective dates of grant
or modification of each Option) of the Stock with respect to which such
Incentive Stock Options are exercisable for the first time during any calendar
year is in excess of $100,000 (or such other limit as may be prescribed by the
Code from time to time); provided, that the foregoing restriction on
modification of outstanding Incentive Stock Options shall not preclude the
Committee from modifying an outstanding Incentive Stock Option if, as a result
of such modification and with the consent of the Optionee, such Option no longer
constitutes an Incentive Stock Option; and provided further that, if the
$100,000 limitation (or such other limitation prescribed by the Code) described
in this Section 6.4 is exceeded, the Incentive Stock Option, the granting or
modification of which resulted in the exceeding of such limit, shall be treated
as an Incentive Stock Option up to the limitation and the excess shall be
treated as an Option not qualifying as an Incentive Stock Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to
each Option shall be determined by the Committee. Subject to the provisions of
Section hereof, the Exercise Price of an Incentive Stock Option shall not be
less than the Fair Market Value of the Stock as of the date such Option is
granted (or in the case of an Incentive Stock Option that is subsequently
modified, on the date of such modification).
6.6 Exercise Period. The period for the exercise of each Option
granted hereunder shall be determined by the Committee, but the Stock Option
Agreement with respect to each Option intended to be an Incentive Stock Option
shall provide that such Option shall not be exercisable after the expiration of
ten (10) years from the date of grant (or modification) of the Option. In
addition, no Option granted to a Section 16 Insider shall be exercisable prior
to the expiration of six (6) months from the date such Option is granted, other
than in the case of the death or Disability of the Optionee.
6.7 Option Exercise.
(a) Unless otherwise provided in the Stock Option
Agreement or Section 6.6 hereof, an Option may be exercised at any time or from
time to time during the term of the Option as to any or all full shares which
have become Purchasable under the provisions of the
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Option, but not at any time as to less than one hundred (100) shares unless the
remaining shares that have become so Purchasable are less than one hundred (100)
shares. The Committee shall have the authority to prescribe in any Stock Option
Agreement that the Option may be exercised only in accordance with a vesting
schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the
Company at its principal office of a written notice of exercise with respect to
a specified number of shares of Stock and (ii) payment to the Company at that
office of the full amount of the Exercise Price for such number of shares in
accordance with Section 6.7(c). If requested by an Optionee, an Option may be
exercised with the involvement of a stockbroker in accordance with the federal
margin rules set forth in Regulation T (in which case the certificates
representing the underlying shares will be delivered by the Company directly to
the stockbroker).
(c) The Exercise Price is to be paid in full in cash by a
certified or cashier's check payable to the Company upon the exercise of the
Option and the Company shall not be required to deliver certificates for the
shares purchased until such payment has been made; provided, however, that the
Committee may provide in a Stock Option Agreement (or may otherwise determine in
its sole discretion at the time of exercise) that in lieu of cash, all or any
portion of the Exercise Price may be paid by tendering to the Company shares of
Stock duly endorsed for transfer and owned by the Optionee, or by authorization
to the Company to withhold shares of Stock otherwise issuable upon exercise of
the Option, in each case to be credited against the Exercise Price at the Fair
Market Value of such shares on the date of exercise (however, no fractional
shares may be so transferred, and the Company shall not be obligated to make any
cash payments in consideration of any excess of the aggregate Fair Market Value
of shares transferred over the aggregate Exercise Price); provided further, the
Committee may provide in a Stock Option Agreement (or may otherwise determine in
its sole discretion at the time of exercise) that, in lieu of cash or shares,
full payment may be effected through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (i) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate Exercise Price
(plus all applicable Federal and State income and employment taxes required to
be withheld by the Company by reason of such purchase) and (ii) shall provide
written directives to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
(d) In addition to and at the time of payment of the
Exercise Price, the Company may withhold, or require the Optionee to pay to the
Company in cash, the amount of any federal, state and local income, employment
or other withholding taxes which the Committee determines are required to be
withheld under federal, state or local law in connection with the exercise of an
Option; provided, however, the Committee may provide in a Stock Option Agreement
(or may otherwise determine in its sole discretion at the time of exercise) that
all or any portion of such tax obligations may, upon the election of the
Optionee, be paid by tendering to the Company whole shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares having a Fair Market Value on
the date
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of exercise equal to the amount of such taxes thereby being paid, and subject to
such restrictions as to the approval and timing of any such election as the
Committee may from time to time determine to be necessary or appropriate to
satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable. To the extent tax withholding is
required at an applicable time with respect to Options or Stock acquired under
this Plan by an Optionee, the Company, applicable Subsidiary or other entity
upon which such withholding obligation arises shall be entitled to withhold from
such Optionee's compensation (derived from this Plan or otherwise) the
applicable amount required to be withheld).
(e) The holder of an Option shall not have any of the
rights of a stockholder with respect to the shares of Stock subject to the
Option until such shares have been issued and transferred to the Optionee upon
the exercise of the Option.
(f) Notwithstanding anything to the contrary herein or in
a Stock Option Agreement, a given Option shall not be exercisable to the extent
the exercise thereof would cause the Company to be a reporting company under the
Exchange Act.
6.8 Nontransferability of Option. No Option shall be transferable
by an Optionee other than by will or the laws of descent and distribution;
provided, however, that no Option shall be transferable prior to stockholder
approval of the Plan by an Optionee who is a Section 16 Insider. During the
lifetime of an Optionee, Options shall be exercisable only by such Optionee (or
by such Optionee's guardian or legal representative, should one be appointed).
6.9 Termination of Employment or Service. The Committee shall have
the power to specify, with respect to the Options granted to a particular
Optionee, the effect upon such Optionee's right to exercise an Option as a
result of termination of such Optionee's employment or service under various
circumstances, which effect may include immediate or deferred termination of
such Optionee's rights under an Option, or acceleration of the date at which an
Option may be exercised in full; provided, however, that in no event may an
Incentive Stock Option be exercised after the expiration of ten (10) years from
the date of grant thereof.
6.10 Employment Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.
6.11 Certain Successor Options. To the extent not inconsistent with
the terms, limitations and conditions of Code Section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code Section 424(a).
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ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or any portion thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which the Stock is then listed;
(b) The completion of any registration or other
qualification of such shares which the Committee shall deem necessary or
advisable under any federal or state law or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory
body;
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency or body which the Committee shall
determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following
the exercise of the Option as the Board from time to time may establish for
reasons of administrative convenience.
Stock certificates issued and delivered to Optionees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.
ARTICLE VIII
TERMINATION AND AMENDMENT OF PLAN
8.1 Termination and Amendment. The Board may at any time terminate
the Plan, and may at any time and from time to time and in any respect amend the
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the stockholders of the Company within twelve (12) months of the
date that the Board amends the Plan) may not amend the Plan to:
(a) Increase the total number of shares of Stock issuable
pursuant to Incentive Stock Options under the Plan or materially increase the
number of shares of Stock subject to the Plan, in each case except as
contemplated in Section hereof;
(b) Change the class of employees eligible to receive
Incentive Stock Options that may participate in the Plan or materially change
the class of persons that may participate in the Plan; or
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(c) Otherwise materially increase the benefits accruing
to participants under the Plan.
8.2 Effect on Optionee's Rights. No termination amendment or
modification of the Plan shall affect adversely an Optionee's rights under a
Stock Option Agreement without the consent of the Optionee or his legal
representative.
ARTICLE IX
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE X
MISCELLANEOUS
10.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or accept the surrender of outstanding Options and grant new
Options in substitution for them. However no modification of an Option shall
adversely affect an Optionee's rights under a Stock Option Agreement without the
consent of the Optionee or his legal representative.
10.2 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
10.3 Singular, Plural; Gender. Whenever used herein, nouns in the
singular shall include the plural and the masculine pronoun shall include the
feminine gender and vice versa.
10.4 Headings Not Part of Plan. Headings of Articles and Sections
hereof are inserted for convenience and reference and do not constitute part of
the Plan.
10.5 Interpretation. With respect to Section 16 Insiders,
transactions under this Plan, are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Plan administrators fails to so
comply, it shall be deemed void to the extent permitted by law and deemed
advisable by the Plan administrators.
10.6 Governing Law. This Plan shall be governed by, and construed
in accordance with, the laws of the State of Delaware without regard to
conflicts of laws principles.
* * * *
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OrthAlliance, Inc.
Amended and Restated 1997 Employee Stock Option Plan
Form of Stock Option Agreement
ORTHALLIANCE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
_____ day of ________________, 1997 by and between OrthAlliance, Inc., a
Delaware corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, on May 13, 1997, the Board of Directors of the Company adopted
a stock option plan known as the "OrthAlliance, Inc. Amended and Restated 1997
Employee Stock Option Plan" (the "Plan") and recommended that the Plan be
approved by the Company's stockholders; and
WHEREAS, on August 11, 1997, the stockholder of the Company approved
the Plan; and
WHEREAS, the Committee has granted the Optionee an Option (as described
below) to purchase the number of shares of the Company's Common Stock (the
"Stock") as set forth below, and in consideration of the granting of the Option
the Optionee intends to remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to the Option in accordance with the Plan; and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Plan;
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This Option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
Notwithstanding anything in this Agreement to the contrary, to the extent the
terms of this Agreement conflict with or otherwise attempt to exceed the
authority set forth under the Plan, the Plan shall govern and control in all
respects.
2. Grant of Option. Subject to the terms, restrictions,
limitations, and conditions stated herein and the terms of the Plan, the Company
hereby evidences its grant to the Optionee, not in lieu of salary or other
compensation, of the right and option to purchase all or any part of the number
of shares of Stock (as defined under the Plan), set forth on Schedule A attached
hereto and incorporated herein by reference (the "Option"). The Option shall be
exercisable in
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the amounts and at the times specified on Schedule A. The Option shall expire
and shall not be exercisable after the date specified on Schedule A as the
expiration date or on such earlier date as determined pursuant to the Plan.
Schedule A states whether or not the Option is intended to be an Incentive Stock
Option.
3. Purchase Price. The price per share to be paid by the Optionee
for the shares subject to this Option (the "Exercise Price") shall be as
specified on Schedule A, which price shall be an amount not less than the Fair
Market Value of a share of Stock as of the Date of Grant (as defined in Section
11 below) if the Option is an Incentive Stock Option.
4. Exercise Terms. In the event this Option is not exercised with
respect to all or any part of the shares subject to this Option prior to its
expiration, the shares with respect to which this Option was not exercised shall
no longer be subject to this Option.
5. Restrictions on Transferability. No Option shall be
transferable by Optionee other than by will or the laws of descent and
distribution; provided, however, that no Option shall be transferable prior to
stockholder approval of the Plan by Optionee if Optionee is a Section 16
Insider. During the lifetime of Optionee, Options shall be exercisable only by
Optionee (or by Optionee's guardian or legal representative, should one be
appointed).
6. Notice of Exercise of Option. This Option may be exercised by
the Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 15 hereof to the attention of the Senior
Vice President, General Counsel or such other officer as the Company may
designate. Any such notice shall (a) specify the number of shares of Stock which
the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, then elects to purchase hereunder, (b)
contain such information as may be reasonably required pursuant to Section 12
hereof, and (c) be accompanied by (i) a certified or cashier's check payable to
the Company in payment of the total Exercise Price applicable to such shares as
provided herein, (ii) shares of Stock owned by the Optionee and duly endorsed or
accompanied by stock transfer powers having a Fair Market Value equal to the
total Exercise Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied by the number of shares of Stock whose
Fair Market Value when added to the amount of the check equals the total
Exercise Price applicable to such shares purchased hereunder, or (iv) payment
through a broker-dealer sale and remittance procedure pursuant to which Optionee
shall provide irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Company, out
of the sale proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price (plus all applicable Federal and State income and
employment taxes required to be withheld by the Company by reason of such
exercise) and written directives to the Company to deliver the certificates for
the purchased shares directly to such brokerage firm in order to complete the
sale transaction. Upon receipt of any such notice and accompanying payment, and
subject to the terms hereof, the Company agrees to issue to the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may
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be, stock certificates for the number of shares specified in such notice
registered in the name of the person exercising this Option.
7. Adjustment in Option. The number of shares of Stock subject to
this Option, the Exercise Price and other matters are subject to adjustment
during the term of this Option in accordance with the Plan.
8. Termination of Employment.
(a) Except as otherwise specified in Schedule A hereto,
in the event of the termination of the Optionee's employment with the Company or
any of its Subsidiaries, other than a termination that is either (i) For Cause,
or (ii) for reasons of death or Disability or retirement, the Optionee (or his
or her personal representative) may exercise this Option at any time within
ninety (90) days after such termination to the extent of the number of shares
which were Purchasable hereunder at the date of such termination; provided,
however, that if the Optionee is a Section 16 Insider at the time of termination
and the exercise of this Option would subject the Optionee to matching pursuant
to Section 16(b) of the Exchange Act, such Optionee may exercise this Option at
any time within nine (9) months after the date of termination, to the extent of
the number of shares which were Purchasable hereunder at the date of such
termination.
(b) Except as specified in Schedule A, in the event of a
termination of the Optionee's employment that is For Cause, this Option, to the
extent not previously exercised, shall terminate immediately and shall not
thereafter be or become exercisable.
(c) This Option does not confer upon the Optionee any
right with respect to continuance of employment by the Company or by any of its
Subsidiaries. This Option shall not be affected by any change of employment so
long as the Optionee continues to be an employee of the Company or any of its
Subsidiaries.
9. Disabled Optionee. In the event of termination of employment
because of the Optionee's becoming a Disabled Optionee, the Optionee (or his or
her legal representative) may exercise this Option within a period ending on the
earlier of (a) the last day of the one (1) year period following the beginning
of the Optionee's Disability or (b) the expiration date of this Option, to the
extent of the number of shares which were Purchasable hereunder at the date of
such termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A
with respect to the rights of the Optionee upon termination of employment under
Section 8(a) above, in the event of the Optionee's death, the appropriate
persons described in Section 6 hereof or persons
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to whom all or a portion of this Option is transferred in accordance with
Section 5 hereof may exercise this Option at any time within a period ending on
the earlier of (a) the last day of the one (1) year period following the
Optionee's death or (b) the expiration date of this Option. If the Optionee was
an employee of the Company at the time of death, this Option may be so exercised
to the extent of the number of shares that were Purchasable hereunder at the
date of death. If the Optionee's employment terminated prior to his or her
death, this Option may be exercised only to the extent of the number of shares
covered by this Option which were Purchasable hereunder at the date of such
termination.
11. Date of Grant. This Option was granted by the Board or
Committee on the date set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges
that the issuance of capital stock of the Company is subject to limitations
imposed by federal and state law and the Optionee hereby agrees that the Company
shall not be obligated to issue any shares of Stock upon exercise of this Option
that would cause the Company to violate law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section.
13. Restriction on Disposition of Shares. The shares of Stock
purchased pursuant to the exercise of this Option shall not be transferred by
the Optionee except pursuant to the Optionee's will or the laws of descent and
distribution until such date which is the later of two (2) years after the Date
of Grant or one (1) year after the transfer of the shares of Stock to the
Optionee pursuant to the exercise of such Option.
14. Investment Representation of Optionee
(a) Optionee represents to the Company the following:
(i) that Optionee has read and understands the
terms and provisions of the Plan, and hereby accepts this
Agreement subject to all the terms and provisions of the Plan;
(ii) that Optionee shall accept as binding and
final all decisions or interpretations of the Board or of the
Committee upon any questions arising under the Plan;
(iii) Optionee understands that the existence of
the Plan and the execution of this Agreement are not
sufficient by themselves to cause any exercise of any
Incentive Stock Options granted under the Plan and this
Agreement to qualify for favorable tax treatment through the
application of Section 422(a) of the Code; and that Optionee
must, in order to so qualify, individually meet by Optionee's
own action all applicable requirements of Section 422,
including without limitation, the
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requirement that no disposition of Stock may be made by
Optionee within two (2) years from the date of the grant of
the Option nor within one (1) year after the transfer of such
Stock to Optionee; and
(iv) Optionee understands that, unless at the
time of exercise of the Option, a registration statement under
the Securities Act of 1933, as amended, is in effect covering
the Stock, as a condition to the exercise of the Option the
Company may require Optionee to represent that Optionee is
acquiring the Stock for Optionee's own account only and not
with a view to, or for sale in connection with, any
distribution of the Stock.
(b) The Optionee understands and agrees that the certificate or
certificates representing any shares of Stock acquired hereunder may bear an
appropriate legend relating to registration and resale under federal and state
securities laws.
(c) The Optionee shall not have any rights of a stockholder of the
Company with respect to the shares of Stock which may be purchased upon exercise
of this Option, unless and until such shares shall have been issued and
delivered and his/her name has been entered as a stockholder on the stock
transfer records of the Company.
10. Miscellaneous.
(a) This Agreement shall be binding upon the parties
hereto and their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and
shall be governed by the laws of, the State of Delaware, without regard to
conflicts of laws principles.
(c) Any notice, request, document or other communication
given hereunder shall be deemed to be sufficiently given upon personal delivery
to the other party or upon the expiration of three (3) days after depositing
same in the United States mail, return receipt requested, properly addressed to
the respective parties or such other address as they may give to the other party
in writing in the same manner as follows:
Company: OrthAlliance, Inc.
23848 Hawthorne Blvd., Suite 200
Torrance, California 90505
Attention: Senior Vice President, General Counsel
Optionee: __________________________________________
__________________________________________
__________________________________________
__________________________________________
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(d) This Agreement may not be modified except in writing
executed by each of the parties hereto.
(e) This Agreement, together with the Plan, contains the
entire understanding of the parties hereto and supersedes any prior
understanding and/or written or oral agreement between them respecting the
subject matter hereof.
(f) The parties agree that the provisions of this
Agreement are severable and the invalidity or unenforceability of any provision
in whole or part shall not affect the validity or enforceability of any
enforceable part of such provision or any other provisions hereof.
(g) The headings with Sections herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
(h) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Board or Committee has caused this
Stock Option Agreement to be executed on behalf of the Company, and the
Optionee has executed this Stock Option Agreement, all as of the day and year
first above written.
COMPANY:
ORTHALLIANCE, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
OPTIONEE:
By:
--------------------------------
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SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
ORTHALLIANCE, INC.
AND
[Name of Optionee]
Dated ________________
1. Number of Shares Subject to Option: ________________ shares of Stock.
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
3. Option Exercise Price: $_________________ per share.
4. Date of Grant: ________________________
5. Option Vesting Schedule:
Options are exercisable with respect to the number of shares of Stock indicated
below on or after the date indicated next to the number of shares:
No. of Shares Vesting Date
Notwithstanding the vesting schedule set forth above, upon a Change in
Control, as defined in the Plan, all Options granted hereunder shall become
exercisable immediately upon the occurrence of such Change in Control for a
period of ninety (90) days after written notice to Optionee of the right to such
Options. Any Options not exercised within such ninety day period shall terminate
after the expiration of such period.
6. Option Exercise Period:
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SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
ORTHALLIANCE, INC.
AND
[Name of Optionee]
Dated ________________
NOTICE OF EXERCISE
The undersigned hereby notifies OrthAlliance, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ________________ shares of Stock (as defined under the Plan) pursuant
to the Stock Option Agreement (the "Agreement") between the undersigned and the
Company dated ________________. Accompanying this Notice is (1) a certified or a
cashier's check in the amount of $________________ payable to the Company,
and/or (2) _______________ shares of Stock (as defined under the Plan) presently
owned by the undersigned and duly endorsed or accompanied by stock transfer
powers, having an aggregate Fair Market Value (as defined under the Plan) as of
the date hereof of $__________________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 5 of the
Agreement), and/or (3) evidence of a cashless exercise as set forth in Section 6
of the Agreement.
The undersigned is a resident of the State of ______________.
IN WITNESS WHEREOF, the undersigned has set his/her hand and
seal, this ________ day of ________________, ______.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
----------------------------------------------
Name:
-----------------------------------------
Position (if other than Optionee):
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
Employment Agreement (the "Agreement"), dated as of May 13, 1997, is
by and between OrthAlliance, Inc., a Delaware corporation (the "Company"), and
Sam Westover ("Employee").
In consideration of the mutual promises and conditions contained
herein, the parties hereto agree as follows:
Section 1. EMPLOYMENT. The Company hereby agrees to employ
Employee, and Employee hereby accepts employment by the Company, upon the terms
and subject to the conditions hereinafter set forth.
Section 2. DUTIES. Employee shall serve as the Chief Executive
Officer of the Company. Employee will perform the duties attendant to his
executive position with the Company under the direction of the Board of
Directors of the Company. Employee agrees to devote his reasonable best
efforts to the performance of his duties to the Company.
Section 3. TERM. The term of this Agreement shall be for five
(5) years, commencing on the date that the Registration Statement on Form S-1,
relating to an underwritten initial public offering (the "IPO") of the
Company's Common Stock, $0.001 par value ("Common Stock"), is effective (the
"Commencement Date"), and shall be automatically renewed for successive one
year terms unless either party gives to the other written notice of termination
no fewer than ninety (90) days prior to the expiration of any such term that it
does not wish to extend this Agreement.
Section 4. COMPENSATION AND BENEFITS. In consideration for the
services of the Employee hereunder, the Company will compensate Employee as
follows:
(a) Base Salary. Commencing on the date of consummation of the
IPO, Employee shall be entitled to receive a base salary of $250,000 per annum.
(b) Bonus. Employee shall be eligible to receive an annual cash
bonus in an amount equal to 30% of his base salary in the event that certain
annual financial performance targets established by the Board of Directors are
achieved.
(c) Benefits. The Company shall grant to Employee options to
purchase 300,000 shares of the Company's Common Stock at the initial public
offering price for the Company's Common Stock on terms to be agreed upon
following good faith negotiations between the Company's management team and the
underwriters of the IPO, which terms shall be consistent with the terms of any
stock option plans adopted by the Company and the terms of Section 7 hereof.
In addition, during the term of this Agreement, Employee shall be entitled to
participate in and receive benefits under any and all employee benefit plans
and programs which are from time to time generally made available to the
executive employees of the Company, subject to approval and grant by the
appropriate Company committee with respect to programs calling for such
approvals or grants.
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Section 5. EXPENSES. It is acknowledged that Employee, in
connection with the services to be performed by him pursuant to the terms of
this Agreement, will be required to make payments for travel, entertainment of
business associates and similar expenses. The Company will reimburse Employee
for all reasonable expenses of types authorized by the Company and incurred by
Employee in the performance of his duties hereunder. Employee will comply with
such budget limitations and approval and reporting requirements with respect to
expenses as the Company may establish from time to time.
Section 6. TERMINATION. Employee's employment hereunder will
commence on the Commencement Date and continue until the end of the term
specified in Section 3 hereof and any renewals of such term, except that the
employment of Employee hereunder will terminate earlier in the following
manner:
(a) Death or Disability. Immediately upon the death of Employee
during the term of his employment hereunder or, at the option of the Company,
in the event of Employee's disability, upon 30 days prior written notice to
Employee. Employee will be deemed disabled if, as a result of Employee's
incapacity due to physical or mental illness, Employee shall have been absent
from his duties with the Company on a full-time basis for 120 consecutive
business days. Employee will be eligible for short and/or long-term disability
benefits made available to Company executives.
(b) For Cause. For "Cause" immediately upon written notice by the
Company to Employee. For purposes of this Agreement, a termination will be for
Cause if (i) Employee willfully and continuously fails to perform his duties
with the Company (other than any such failure resulting from incapacity due to
physical or mental illness), (ii) Employee willfully engages in misconduct
materially and demonstrably injurious to the Company or (iii) Employee has been
convicted of a felony or a crime involving moral turpitude.
(c) Failure of IPO. Automatically in the event that the IPO is
not consummated on or before December 31, 1997.
(d) Without "Cause." Without "Cause" upon 30 days prior written
notice to Employee.
(e) Constructive Termination. At Employee's option, upon written
notice by Employee to the Company within 120 days following a Constructive
Termination. As used herein, the term "Constructive Termination" means (i) a
change in Employee's title without Employee's consent, (ii) a material
reduction in Employee's duties and responsibilities without Employee's consent,
(iii) a reduction in Employee's base compensation or maximum eligible bonus
from the immediately preceding year without Employee's consent or (iv) the
relocation of the Company's principal executive offices outside a 20 mile
radius from the location of the Company's principal executive offices at the
Commencement Date without Employee's consent.
Employee will not be entitled to any severance pay or other
compensation upon termination of his employment pursuant to Subsections 6(a),
(b) or (c) or in the event that Employee voluntarily leaves the employment of
the Company, except for any portion of his base
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<PAGE> 3
salary accrued but unpaid from the last monthly payment date to the date of
termination and expense reimbursements under Section 5 hereof for expenses
incurred in the performance of his duties hereunder prior to termination. In
the event Employee's employment with the Company (i) is terminated by the
Company without Cause or (ii) is terminated by Employee within 120 days
following a Constructive Termination, the Company will pay Employee, as
Employee's sole remedy in connection with such termination, (aa) severance pay
in the amount of Employee's monthly base salary at the rate in effect
immediately preceding the termination of Employee's employment multiplied by 24
months (the "Separation Payment"), which Separation Payment will be paid by the
Company in a lump sum on the date of termination, (bb) the portion of his base
salary accrued but unpaid from the last monthly payment date to the date of
termination, (cc) expense reimbursements under Section 5 hereof for expenses
incurred in the performance of his duties hereunder prior to termination and
(dd) any unpaid bonus for any year that was completed prior to the termination
and a pro-rata portion of the annual maximum bonus for the year in which the
termination occurs.
Section 7. EFFECT OF TERMINATION ON OPTIONS/COMMON STOCK. Any
options to purchase the Company's Common Stock held by the Employee that have
not yet vested will automatically expire if the Employee's employment with the
Company is terminated for Cause as defined in Section 6(b) or if the Employee
voluntarily leaves the employment of the Company in breach of this Agreement.
If Employee's employment with the Company ends for any reason other than
termination for Cause, voluntary departure or due to death, such Employee's
options will remain exercisable and will vest and expire in accordance with the
terms of the applicable option agreements. If the Employee dies while employed
by the Company his options shall become fully exercisable on the date of his
death and shall expire twelve months thereafter. If Employee has any vested
but unexercised options upon any termination of employment, such options shall
remain exercisable for the greater of 90 days or the time period specified in
any applicable option plan or option agreement.
Section 8. CHANGE IN CONTROL TERMINATION PAYMENT.
(a) Termination Payment.
(i) Amount. Notwithstanding anything to the contrary
contained in Section 7 hereof, in the event Employee's employment with
the Company terminates for any reason (other than death) within the
twelve month period following a Change In Control (as defined in
subsection 8(b) hereof) occurring after consummation of the IPO, the
Company will pay Employee a lump sum payment (the "Termination
Payment") in cash equal to three (3) times the sum of the 3 items in
the following subsections (1) and (II):
(I) Employee's annual base compensation
determined by reference to his base salary in effect
immediately prior to the Change In Control; and
(II) the maximum bonus that Employee could receive
under any management incentive bonus plan of the Company for
the year in which the Change In Control occurs.
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The Termination Payment will also include the following:
(III) Employee's base salary accrued but unpaid
from the last payment date to the date of termination;
(IV) expense reimbursement under Section 5 hereof
for expenses incurred in the performance of his duties
hereunder prior to the termination of his employment with the
Company;
(V) any other benefit accrued but unpaid as of
the date of such termination; and
(VI) the estimated cost to Employee of obtaining
medical, dental, life and disability insurance coverage for a
period of eighteen months; provided that such coverage will be
substantially similar to the coverage provided to Employee by
Employer immediately prior to the Change In Control; and
provided further that this subsection 8(a)(i)(VI) will be
applied without regard to, and the amount payable under this
subsection 8(a)(i)(VI) is in addition to, any continuation
(COBRA) rights or conversion rights under any plan provided by
Employer, which rights are not affected by any provision
hereof.
(ii) Time for Payment; Interest. The Company will pay the
Termination Payment to Employee concurrent with Employee's termination
of employment. Employer's obligation to pay to Employee any amounts
under this Section 8, including without limitation the Termination
Payment and any Gross Up Payment due under subsection (c), will bear
interest at the maximum rate allowed by law until paid by Employer,
and all accrued and unpaid interest will bear interest at the same
rate, all of which interest will be compounded daily.
(iii) Payment Authority. Any officer of the Company (other
than Employee) is authorized to issue and execute a check, initiate a
wire transfer or otherwise effect payment on behalf of the Company to
satisfy the Company's obligations to pay all amounts due to Employee
under this Section 8.
(iv) Termination. The Company's obligation to pay the
Termination Payment will not be affected by the manner in which
Employee's employment with the Company is terminated. Without
limiting the generality of the foregoing, the Company will be
obligated to pay the Termination Payment and any Gross Up Payment
regardless of whether Employee's termination of employment is
voluntary, involuntary, for cause, without cause, in violation of any
employment agreement or other agreement in effect at the time of the
Change In Control, or due to Employee's retirement or disability.
Employee's notice of his termination of employment in connection with
a Change In Control may be made by any means. If Employee receives
the Termination Payment, the Employee shall not be entitled to receive
the Separation Payment under Section 7.
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(b) Change In Control. A Change In Control will be deemed to have
occurred for purposes hereof (i) when a change of stock ownership of the
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any successor Item of a similar nature has
occurred; or (ii) upon the acquisition of beneficial ownership, directly or
indirectly, by any person (as such term is used in Section 14(d)(2) of the
Exchange Act) of securities of the Company representing 33 % or more of the
combined voting power of the Company's then outstanding securities; or (iii) a
change during any period of two consecutive years of a majority of the members
of the Board of Directors of the Company for any reason, unless the election,
or the nomination for election by the Company's shareholders, of each director
was approved by a vote of a majority of the directors then still in office who
were directors at the beginning of the period; provided that a Change In
Control will not be deemed to have occurred for purposes hereof with respect to
any person meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
promulgated under the Securities Exchange Act of 1934, as amended.
(c) Gross Up Payment.
(i) Excess Parachute Payment. If Employee incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the
"Code") on "excess parachute payments" within the meaning of Section 28OG(b)(1)
of the Code, the Company will pay to Employee an amount (the "Gross Up
Payment") such that the net amount retained by Employee, after deduction of any
Excise Tax on the excess parachute payment and any federal, state and local
income tax (together with penalties and interest) and Excise Tax upon the
payment provided for by this subsection (c)(i), will be equal to the amount of
the excess parachute payment.
(ii) Applicable Rates. For purposes of determining the amount of
the Gross Up Payment, Employee will be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross Up Payment is to be made and state and local income taxes at
the highest marginal rates of taxation in the state and locality of Employee's
residence on the date of his termination of employment, net of the maximum
reduction in federal income taxes that could be obtained from deduction of such
state and local taxes.
(iii) Determination of Gross Up Payment Amount. The determination
of whether the Excise Tax is payable and the amount thereof will be based upon
the opinion of tax counsel selected by Employee. If such opinion is not
finally accepted by the Internal Revenue Service (or state and local taxing
authorities), then appropriate adjustments to the Excise Tax will be computed
and additional Gross Up Payments will be made in the manner provided by this
subsection (c).
(iv) Time For Payment. The Company will pay the estimated amount
of the Gross Up Payment in cash to Employee concurrent with Employee's
termination of employment. Employee and the Company agree to reasonably
cooperate in the determination of the actual amount of the Gross Up Payment.
Further, Employee and the Company agree to make such
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adjustments to the estimated amount of the Gross Up Payment as may be necessary
to equal the actual amount of the Gross Up Payment, which in the case of
Employee will refer to refunds of prior overpayments and in the case of the
Company will refer to makeup of prior underpayments.
(d) Arbitration. Any controversy or claim arising out of or
relating to this Section 8, or the breach thereof, will be settled exclusively
by arbitration in Los Angeles, California, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect.
Judgment upon the award rendered by the arbitrator(s) may be entered in, and
enforced by, any court having jurisdiction thereof.
(e) No Right To Continued Employment. This Section 8 will not
give Employee any right of continued employment or any right to compensation or
benefits from the Company except the rights specifically stated herein.
(f) Exercise of Stock Options. Employee's options to purchase the
Company's Common Stock will vest completely and become immediately exercisable
upon a Change In Control and will remain exercisable for the greater of 90 days
or the time period specified in the applicable option plan or option agreement.
Section 9. CONFIDENTIAL INFORMATION. Employee recognizes and
acknowledges that certain assets of Employer and its affiliates, including
without limitation information regarding customers, pricing policies, methods
of operation, proprietary computer programs, sales, products, profits, costs,
markets, key personnel, formulae, product applications, technical processes,
and trade secrets (hereinafter called "Confidential Information") are valuable,
special and unique assets of Employer and its affiliates. Employee will not,
during or after his term of employment, disclose any of the Confidential
Information to any person, firm, corporation, association, or any other entity
for any reason or purpose whatsoever, directly or indirectly, except as may be
required pursuant to his employment hereunder, unless and until such
Confidential Information becomes publicly available other than as a consequence
of the breach by Employee of his confidentiality obligations hereunder. In the
event of the termination of his employment, whether voluntary or involuntary
and whether by the Company or Employee, Employee will deliver to the Company
all documents and data pertaining to the Confidential 6 Information and will
not take with him any documents or data of any kind or any reproductions (in
whole or in part) of any items relating to the Confidential Information.
Section 10. NONCOMPETITION. Until two years after termination of
Employee's employment hereunder, Employee will not (i) engage directly or
indirectly, alone or as a shareholder, partner, officer, director, employee or
consultant of any other business organization, in any business activities which
(A) relate to the acquisition, consolidation or management of orthodontic
practices (the "Designated Industry") and (B) were either conducted by the
Company prior to Employee's termination or proposed to be conducted by the
Company at the time of such termination, (ii) divert to any competitor of the
Company in the Designated Industry any customer of the Company, or (iii)
solicit or encourage any officer, employee, or consultant of the Company to
leave its employ for employment by or with any competitor of the Company in the
Designated Industry. The parties hereto acknowledge that Employee's
6
<PAGE> 7
noncompetition obligations hereunder will not preclude Employee from owning
less than 2 % of the common stock of any publicly traded corporation conducting
business activities in the Designated Industry. Employee will continue to be
bound by the provisions of this Section 1 0 until their expiration and will not
be entitled to any compensation from the Company with respect thereto. If at
any time the provisions of this Section 10 are determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 10 will be considered divisible and will become
and be immediately amended to only such area, duration and scope of activity as
will be determined to be reasonable and enforceable by the court or other body
having jurisdiction over the matter; and Employee agrees that this Section 1 0
as so amended will be valid and binding as though any invalid or unenforceable
provision had not been included herein.
Section 11. GENERAL.
(a) Notices. Except as provided in Section 8(a) hereof, all
notices and other communications hereunder will be in writing or by written
telecommunication, and will be deemed to have been duly given if delivered
personally or if mailed by certified mail, return receipt requested, or by
written telecommunication, to the relevant address set forth below, or to such
other address as the recipient of such notice or communication will have
specified to the other party hereto in accordance with this Section 11(a):
If to Employer, to:
OrthAlliance, Inc.
Attn: General Counsel
23848 Hawthorne Boulevard, Suite 200
Torrance, CA 90505
If to Employee, to:
Sam Westover
c/o OrthAlliance, Inc.
23848 Hawthorne Boulevard, Suite 200
Torrance, CA 90505
(b) Withholding; No Offset. All payments required to be made by
Employer under this Agreement to Employee will be subject to the withholding of
such amounts, if any, relating to federal, state and local taxes as may be
required by law. No payment under this Agreement will be subject to offset or
reduction attributable to any amount Employee may owe to the Company or any
other person.
(c) Equitable Remedies. Each of the parties hereto acknowledges
and agrees that upon any breach by Employee of his obligations under any of
Sections 9 and 10 hereof, the Company will have no adequate remedy at law, and
accordingly will be entitled to specific performance and other appropriate
injunctive and equitable relief.
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<PAGE> 8
(d) Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable, such provision will be fully severable
and this Agreement will be construed and enforced as if such illegal, invalid
or unenforceable provision never comprised a part hereof; and the remaining
provisions hereof will remain in full force and effect and will not be affected
by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
(e) Waivers. No delay or omission by either party hereto in
exercising any right, power or privilege hereunder will impair such right,
power or privilege, nor will any single or partial exercise of any such right,
power or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege.
(f) Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same instrument.
(g) Captions. The captions in this Agreement are for convenience
of reference only and will not limit or otherwise affect any of the terms or
provisions hereof
(h) Reference to Agreement. Use of the words "herein," "hereof,"
"hereto" and the like in this Agreement refer to this Agreement only as a whole
and not to any particular subsection or provision of this Agreement, unless
otherwise noted.
(i) Binding Agreement. This Agreement will be binding upon and
inure to the benefit of the parties and will be enforceable by the personal
representatives and heirs of Employee and the successors of Employer. If
Employee dies while any amounts would still be payable to him hereunder, such
amounts will be paid to Employee's estate. This Agreement is not otherwise
assignable by Employee.
(j) Entire Agreement. This Agreement contains the entire
understanding of the parties, supersedes all prior agreements and
understandings relating to the subject matter hereof and may not be amended
except by a written instrument hereafter signed by each of the parties hereto.
(k) Governing Law. This Agreement and the performance hereof will
be construed and governed in accordance with the laws of the State of
California, without regard to its choice of law principles.
EXECUTED as of the date first above written.
ORTHALLIANCE, INC.
By: /s/ Paul Hayase
------------------------
Its: Sr. Vice President
8
<PAGE> 9
/s/ Sam Westover
----------------------------
Sam Westover
9
<PAGE> 10
SCHEDULE 10.8
OrthAlliance, Inc. ("OrthAlliance") has entered into agreements
substantially identical to Exhibit 10.8 as follows:
1. Employment Agreement dated as of May 13, 1997 by and between
OrthAlliance and P. Craig Hethcox. Material details in which this agreement
differs from Exhibit 10.5 are as follows:
a. Mr. Hethcox is employed as Chief Operating Officer of
OrthAlliance at a base salary of $185,000 per year.
b. Mr. Hethcox was granted options to purchase 100,000
shares of Common Stock.
2. Employment Agreement dated as of May 13, 1997 by and between
OrthAlliance and Paul H. Hayase. Material details in which this agreement
differs from Exhibit 10.5 are as follows:
a. Mr. Hayase is employed as Senior Vice President -
Human Resources, General Counsel and Secretary at a base
salary of $165,000 per year.
b. Mr. Hayase was granted options to purchase 75,000
shares of Common Stock.
<PAGE> 1
EXHIBIT 10.9
ORTHALLIANCE, INC.
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is dated as of the 13th day
of May, 1997 (the "Effective Date"), by and between JONATHAN E. WILFONG
("Consultant") and ORTHALLIANCE, INC. ("OrthAlliance"), a Delaware corporation.
Because OrthAlliance desires to retain Consultant and because Consultant desires
to be retained by OrthAlliance, both parties, in consideration of the mutual and
exchanged promises and agreement contained herein, particularly the
non-disclosure, non-solicitation and non-competition covenants set forth herein,
and of fees paid and services rendered hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
hereby agree as follows:
Section 1. Consulting Services. During the term of this Agreement,
Consultant shall render to OrthAlliance financial and general business services
and such other consultation as OrthAlliance shall from time to time reasonably
request. Consultant, with the prior approval and consent of OrthAlliance, shall
assist OrthAlliance to complete the IPO. During the term of this Agreement,
Consultant will not engage in any activities in conflict with the best interests
of OrthAlliance or of any Affiliate. Affiliate shall mean each corporation or
other business entity directly or indirectly controlling, controlled by, or
under common control with OrthAlliance.
Section 2. Compensation.
In consideration for the services to be provided by Consultant
hereunder, Consultant shall receive the following:
(a) Consulting Fee. On the date five (5) business days after
the closing of the IPO, OrthAlliance shall pay to Consultant a consulting fee of
$50,000 (the "Consulting Fee"). Due to Consultant's status as an independent
contractor during the term of this Agreement, OrthAlliance shall not withhold
any taxes from the Consulting Fee, unless otherwise required by law. As an
independent contractor, Consultant shall not be entitled to any benefits or
payments not expressly provided for in this Section.
(b) Warrant. As of the date hereof, Consultant shall be
granted a warrant to purchase 150,000 shares of Class A common stock of
OrthAlliance (the "Warrant") exercisable at the initial public offering price
per share; provided, however, that the Warrant shall be exercisable upon and
only upon the closing of the IPO. The Warrant shall have a term of five (5)
years from the effective date of the S-1.
(c) Expenses. In addition to the Consulting Fee, Consultant
shall be entitled to reimbursement by OrthAlliance for all actual, reasonable
and direct expenses incurred by Consultant in connection with the services to be
provided
<PAGE> 2
hereunder; provided, however, that such expenses are properly characterized as
being business expenses that are properly tax deductible for OrthAlliance.
Consultant shall provide OrthAlliance with written documentation for such
expenses in a form complying with the records required by the Internal Revenue
Service and appropriate state authorities for tax deductibility purposes, and
reimbursement for each item of approved expenses shall be made within a
reasonable time after receipt by OrthAlliance of the written documentation
thereof. Any expenditures in excess of $1,000 must be approved in advance by an
officer of OrthAlliance.
Section 3. Term; Termination.
(a) Consulting Term. Notwithstanding anything herein to
the contrary, the term of this Agreement shall commence as of the Effective
Date and shall terminate on September 30, 1997, unless terminated earlier as
set forth below:
(b) Termination.
(i) OrthAlliance may terminate this Agreement in
accordance with the following:
(1) Immediately, upon the death or Permanent
Disability (as defined below) of Consultant.
"Permanent Disability" shall mean, that by reason of
any physical or mental incapacity or other cause,
Consultant has been unable, or it is reasonably
determined by the board of directors of OrthAlliance
that Consultant will be unable, for a period of at
least 30 substantially consecutive days to perform
Consultant's services hereunder in a reasonably
satisfactory manner; or
(2) Upon the delivery by OrthAlliance to
Consultant of written notice of termination for cause
of Consultant's engagement as a consultant. "Cause"
shall mean any conduct by Consultant involving (i)
moral turpitude, (ii) conviction of Consultant of any
felony, fraud or theft, (iii) any misconduct or gross
negligence on the part of Consultant in the
performance of any services hereunder, (iv) any act
on the part of Consultant of fraud, deceit or
misappropriation, (v) any failure or refusal on the
part of Consultant to perform his duties under this
Agreement or to obey lawful directives from the board
of directors of OrthAlliance, (vi) any breach by
consultant of any obligation hereunder, (vii) any act
on the part of Consultant in violation of the spirit
or terms of the nondisclosure or non-competition
covenants contained in this Agreement, regardless of
whether those covenants are deemed to be legally
unenforceable, (viii) any act or omission by
Consultant that has injures the reputation of
2
<PAGE> 3
OrthAlliance or (ix) the failure of Consultant to
adhere to any written or established policy of
OrthAlliance.
(ii) Consultant may terminate this Agreement with
or without cause by providing thirty days prior written notice
to OrthAlliance of Consultant's resignation.
(c) Effect of Termination.
(i) Upon the termination of this Agreement by
reason of the death or Permanent Disability of Consultant, OrthAlliance shall be
obligated to Consultant or Consultant's Personal Representative, as the case may
be, for the Consulting Fee only if the S-1 has become effective prior to the
date of such termination. Upon the termination of this Agreement for Cause,
Consultant shall forfeit any and all right to the Consulting Fee, unless the IPO
has closed prior to such termination. For purposes of this Agreement, the term
"Personal Representative" shall mean any person acting in a representative
capacity as the executor or administrator of Consultant's estate or the duly
appointed guardian of the property of Consultant or any attorney-in-fact acting
for Consultant pursuant to a valid and binding power of attorney.
(ii) Notwithstanding anything else in this
Agreement to the contrary, the provisions of Sections 4, 5 and 6 hereof shall
survive the termination of this Agreement.
Section 4. Non-Disclosure of Trade Secrets and Confidential
Information.
(a) Trade Secrets Defined. "Trade Secrets" shall mean all
secret, proprietary or confidential information regarding OrthAlliance and each
Affiliate or OrthAlliance or Affiliate activities, including any and all
information not generally known to, or ascertainable by, persons not employed by
OrthAlliance or any Affiliate, the disclosure or knowledge of which would permit
those persons to derive actual or potential economic value therefrom or to cause
economic or financial harm to OrthAlliance or any Affiliate. Such information
shall include, but not be limited to, customer/orthodontist lists, computer
software (including, without limitation, source code, object code and manuals),
customer billing information, technical information regarding OrthAlliance or
any Affiliate products or services, prices paid by customers, purchase and
supply information, current and future development and expansion or contraction
plans of OrthAlliance or any Affiliate, sales and marketing techniques,
information concerning personnel assignments and operations of OrthAlliance or
any Affiliate and matters concerning the financial affairs, future plans and
management of OrthAlliance or any Affiliate. "Trade Secrets" shall not include
information that has become generally available to the public by the act of one
who has the right to disclose such information without violating any right or
privilege of OrthAlliance or any Affiliate. This definition shall not limit any
definition of "trade secrets" under applicable state or federal law.
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<PAGE> 4
(b) Non-Disclosure of Trade Secrets. Throughout the term of
this Agreement and at all times after the date that this Agreement terminates
for any reason, Consultant shall not directly or indirectly transmit or disclose
any Trade Secret of OrthAlliance or any Affiliate to any person, concern or
entity, and shall not make use of any such Trade Secret directly or indirectly,
for himself or for others, without the prior written consent of OrthAlliance,
except (i) to the extant such disclosure is consistent with Consultant's duties
hereunder or (ii) for a disclosure that is required by an law or regulation or
court order, in which latter case Consultant shall provide OrthAlliance prior
written notice of such disclosure and an opportunity to contest such disclosure.
(c) Confidential Information Defined. "Confidential
Information" shall mean all information regarding OrthAlliance or any Affiliate,
OrthAlliance's or any Affiliate's activities, OrthAlliance's or any Affiliate's
business or OrthAlliance's or any Affiliate's customers that is not generally
known to persons not employed by OrthAlliance but that does not rise to the
level of a Trade Secret and that is not generally disclosed by OrthAlliance
practice or authority to persons not employed by OrthAlliance. "Confidential
Information" shall not include information that has become generally available
to the public by the act of one who has the right to disclose such information
without violating any right or privilege of OrthAlliance. This definition shall
not limit any definition of "Confidential Information" or any equivalent
designation under state or federal law.
(d) Non-Disclosure of Confidential Information. During the
term of this Agreement and for two (2) years thereafter, Consultant shall not
directly or indirectly transmit or disclose any Confidential Information to any
person, concern or entity, or make any use of any such Confidential Information,
directly or indirectly, without the prior written consent of OrthAlliance,
except to the extent such disclosure is consistent with Consultant's duties
hereunder. Upon termination of this Agreement, Consultant will return all Trade
Secrets and all Confidential Information of OrthAlliance and Affiliates,
including without limitation, any documents, notes, analyses, compilations or
other materials incorporating or based on any Trade Secrets or Confidential
Information of OrthAlliance or any Affiliate.
(e) Injunctive Relief. Consultant acknowledges that the
nondisclosure covenants contained in this Section are a reasonable means of
protecting and preserving OrthAlliance's and any Affiliate's interest in the
confidentiality of this information. Consultant agrees that any breach of these
covenants will result in irreparable damage and injury to OrthAlliance or
Affiliates and that OrthAlliance will be entitled to injunctive relief in any
court of competent jurisdiction without the necessity of posting any bond.
Consultant also agrees that any such injunctive relief shall be in addition to
any damages that may be recoverable by OrthAlliance.
(f) Enforceability of Covenants. Consultant and OrthAlliance
agree that Consultant's obligations under these non-disclosure covenants are
separate and distinct from its obligations under other provisions of this
Agreement, and a failure or
4
<PAGE> 5
alleged failure of OrthAlliance to perform its obligations under any provision
of this Agreement shall not constitute a defense to the enforceability of these
nondisclosure covenants.
Section 5. Non-Solicitation. For a period of twelve (12) months after
the date hereof, Consultant or affiliates shall not directly or indirectly
recruit or attempt to recruit or make an offer of employment to become engaged
in a business that competes with OrthAlliance to any person who is then an
employee, officer, director or independent contractor of OrthAlliance or any
Affiliate or who has terminated such employment or relationship without the
consent of OrthAlliance or any Affiliate within 180 days of such recruitment or
offer. This non-solicitation provision will also apply to offers of employment
as independent consultants.
Section 6. Non-Competition.
(a) During Consultant's engagement by OrthAlliance as a
contractor and for a period of two (2) years following the termination of such
engagement for any reason whatsoever, the Consultant shall not (except on behalf
of or with the prior written consent of OrthAlliance), within the continental
United States (the "Area"), either directly or indirectly, on his or her own
behalf or in the service or on behalf of others, (i) be engaged in or perform
services in any capacity for any Competing Business which involves duties and
responsibilities similar to the services provided by Consultant to OrthAlliance,
(ii) take any action of whatever nature which would require, or undertake any
engagement that could reasonably be expected to result in, the disclosure or use
of proprietary information; or (iii) own, manage, operate, join, contract with,
or participate in the ownership, management or control of or be engaged in or be
connected in any manner with (whether as principal, partner, shareholder,
director, officer, employee, agent, consultant or otherwise) any business which
is or may be competitive in any manner with the business engaged in by
OrthAlliance; it being understood that the business engaged in by OrthAlliance
includes, but is not limited to, consulting services for, and management of the
practices of orthodontists. It is the express intention of the parties that the
Area, as herein defined, is related to the area where the Consultant performs or
performed services on behalf of OrthAlliance under this Agreement as of, or
within a reasonable time prior to, the termination of the Consultant's
engagement hereunder.
(b) "Competing Business" means any business organization of
whatever form directly engaged in any business or enterprise which is the same
as, or substantially the same as, the business of OrthAlliance.
Section 7. Miscellaneous.
(a) Severability. The covenants got forth in this Agreement
shall be considered and construed as separate and independent covenants. Should
any part or provision of any covenant be held invalid, void or unenforceable in
any court of competent jurisdiction, such invalidity, voidness or
unenforceability shall not render
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<PAGE> 6
invalid, void or unenforceable any other part or provision of this Agreement if
any portion of the foregoing provisions is found to be invalid or unenforceable
by a court of competent jurisdiction because of its duration, the territory, the
definition of activities of the definition of information covered is invalid or
unreasonable in scope, the invalid or unreasonable term shall be redefined, or a
new enforceable term provided, such that the intent of OrthAlliance and
Consultant in agreeing to the provisions of this Agreement will not be impaired
and the provision in question shall be enforceable to the fullest extent of the
applicable laws.
(b) Waiver. The waiver by any party to this Agreement of a
breach of any of the provisions of this Agreement shall not operate or be
construed as a waiver of any other or subsequent breach.
(c) Governing Law. This Agreement shall be deemed to be made
in and shall in all respects be interpreted, construed and governed by and in
accordance with the laws of the State of California (without giving effect to
the conflict of law principles thereof). No provision of this Agreement or any
related documents shall be construed against, or interpreted to the disadvantage
of, any party hereto, by any court or any governmental or judicial authority by
reason of such party having or being deemed to have structured or drafted such
provision.
(d) Entire Agreement. This Agreement is intended by the
parties hereto to be the final expression of their agreement with respect to the
subject matter hereof and this is the complete and exclusive statement of the
terms of their agreement, notwithstanding any representations, statements or
agreements to the contrary heretofore made, This Agreement supersedes any former
agreements governing the same subject matter. This Agreement may be modified
only by a written instrument signed by each of the parties hereto.
(e) Assignability. This Agreement may not be assigned by
either party without the prior written consent of the other party.
(f) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONSULTANT:
/s/ Jonathan E. Wilfong
-----------------------
Jonathan E. Wilfong
ORTHALLIANCE:
ORTHALLIANCE, INC.
By: /s/ Sam Westover
-----------------------------------------
Name: Sam Westover
------------------------------
Its: President
-------------------------------
7
<PAGE> 8
SCHEDULE 10.9
OrthAlliance has succeeded to the rights to agreements substantially
identical to Exhibit 10.9 as follows:
1. Consulting Agreement dated as of June 10, 1996 with Jonathan
E. Wilfong and Newfound Capital Associates. Material details
in which this agreement differs from Exhibit 10.9 are as
follows:
a. Mr. Wilfong receives a consulting fee of
$250,000.
b. Mr. Wilfong received 225,000 shares of US
Orthodontic Care, Inc. ("USOC") common
stock (converts pursuant to the merger of
USOC and Premier Orthodontic Group, Inc.
with and into OrthAlliance (the "Merger")
into 111,512 shares of Class A Common Stock
and 15,930 shares of Class B Common Stock
of OrthAlliance).
c. Mr. Wilfong received a warrant to purchase
168,750 shares of common stock of USOC at
an exercise price equal to the initial
public offering price net of underwriter
discounts and commissions (converts
pursuant to the Merger into a warrant to
purchase the same number of shares of Class
A Common Stock of OrthAlliance at the same
exercise price.
2. Consulting Agreement dated as of June 10, 1996 with Robert D.
Garces and Premier Management, Inc. of Atlanta, Georgia.
Material details in which this agreement differs from Exhibit
10.9 are as follows:
a. Mr. Garces receives a consulting fee of
$100,000.
b. Mr. Garces received 95,000 shares of USOC
common stock (converts pursuant to the
Merger into 47,083 shares of Class A Common
Stock and 6,726 shares of Class B Common
Stock of OrthAlliance.
c. Mr. Garces received a warrant to purchase
56,250 shares of common stock of USOC at an
exercise price equal to the initial public
offering price net of underwriter discounts
and commissions (converts pursuant to the
Merger into a warrant to purchase the same
number of shares of Class A Common Stock of
OrthAlliance at the same exercise price.
<PAGE> 1
EXHIBIT 10.10
FORM OF
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") dated as of
_________________, 1997 by and between _______________________, a Florida
_________________________ (the "Orthodontic Entity"), and
______________________________, a licensed orthodontist (the "Orthodontist").
W I T N E S S E T H:
WHEREAS, the Orthodontic Entity desires to employ the Orthodontist and
to be assured of his services as such on the terms and conditions hereinafter
set forth; and
WHEREAS, the Orthodontist is willing to accept such
employment on such terms and conditions;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00), the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the adequacy, receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the Orthodontic
Entity and the Orthodontist hereby agree as follows:
1. EMPLOYMENT.
(a) The Orthodontic Entity hereby employs the Orthodontist to
provide orthodontic services to the general public at the facility or facilities
operated by the Orthodontic Entity (the "Center(s)"), as listed on Exhibit A
attached hereto and incorporated herein by reference, in accordance with the
methods, procedures and processes from time to time set forth by the Orthodontic
Entity, to the extent permitted by applicable law.
(b) The Orthodontist shall faithfully and diligently discharge
his duties hereunder and shall devote his full business time, attention, skill,
and effort exclusively to the business and affairs of the Orthodontic Entity,
subject to allowed vacations and to reasonable periods of illness. During the
term of this Agreement, the Orthodontist shall not, directly or indirectly, as a
partner, member, stockholder, consultant, agent, joint venturer, investor,
lender, individual proprietor, officer, director, employee (except for stock or
investments held by the Orthodontist as of July 31, 1996), or in any capacity
whatsoever, alone or in association with others, own, manage, operate, control
or participate in the ownership, management, operation or
<PAGE> 2
control of, or work for or permit the use of Orthodontist's name by, or be
connected with in any manner with, or contract to be provided services from any
business, organization or person in competition with the Orthodontic Entity or
any of its affiliated organizations, without the prior written consent of the
Orthodontic Entity. Notwithstanding the foregoing, the Orthodontist shall be
permitted to devote up to eight (8) business days per month to the
Orthodontist's other non-dental and non-orthodontic business interests and
activities; provided, however, that in conducting such activities, the
Orthodontist shall not compete with Premier Orthodontic Group, Inc., a Delaware
corporation, or its successors or assigns ("Premier") or act in any manner
inconsistent with the best business interests of Premier.
2. TERM OF EMPLOYMENT. Unless sooner terminated as provided in
Section 4 hereof, the Orthodontist's employment shall be for an initial term of
five (5) years commencing on the date the Securities and Exchange Commission
declares effective Premier's registration statement on Form S-1 for the sale of
Premier's common stock in an initial public offering (the "IPO") and ending on
the fifth (5th) anniversary thereof (the "Initial Term"). Upon expiration of the
Initial Term, this Agreement shall renew automatically thereafter for additional
one year terms, unless and until terminated as provided in Section 4 hereof.
3. COMPENSATION.
(a) As compensation for services hereunder, the Orthodontic
Entity shall pay to the Orthodontist a percentage as determined by the
Orthodontic Entity of the amount of Adjusted Gross Revenue (determined based on
the accrual method of accounting) of the Center remaining after payment in full
each month of (i) the monthly Service Fee as defined in that certain Service
Agreement, by and between the Orthodontic Entity and Premier, dated as of even
date herewith (the "Service Agreement"), and (ii) all expenses of the Center,
including, without limitation, all Center Expenses (as defined in the Service
Agreement) and all malpractice insurance premiums. As used herein, the term
"Adjusted Gross Revenue" shall mean Gross Revenue of the Center less any
adjustments for uncollectible accounts, professional courtesies and other
activities that do not generate a collectible fee. The term "Gross Revenue" as
used herein shall mean all fees and charges recorded or booked each month by or
on behalf of the Orthodontic Entity as a result of professional orthodontic
services personally furnished to patients by the Orthodontist and those under
the Orthodontist's supervision and other fees or income generated in his
capacity as a professional prior to any adjustments.
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<PAGE> 3
(b) Payments expended each fiscal year by the Orthodontic
Entity on behalf of the Orthodontist and other orthodontists or dentists
delivering patient care at the Center(s) for continuing education, seminars,
professional license fees and dues, professional memberships, expenses related
to a company automobile for the Orthodontist, and all other expenses of the
Orthodontist and other orthodontists and dentists delivering patient care at the
Center(s) that do not directly benefit the Orthodontic Entity (as reasonably
determined by Premier), up to the amount of three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue, shall be considered a Center
Expense. To the extent that such expenses exceed three percent (3%) of the
Orthodontic Entity's Adjusted Gross Revenue for such year, the Center Expenses
shall be reduced by such excess amount for the purpose of calculating the
Service Fee (as defined in the Service Agreement). Notwithstanding the
foregoing, Orthodontist is encouraged to incur expenses that will promote the
Orthodontic Entity, which expenses shall be considered Center Expenses for
purposes of calculating the Service Fee.
4. TERMINATION.
(a) Notwithstanding the provisions of Section 2 hereof,
either the Orthodontic Entity or the Orthodontist may terminate the
Orthodontist's employment without cause at any time after the expiration of the
Initial Term by giving one (1) year's prior written notice to the other party to
such effect, such notice to be effective upon receipt by the non-terminating
party. Orthodontic Entity may terminate Orthodontist's employment for "cause"
(as defined in Section 4(b) below) and the Orthodontist may terminate his
employment pursuant to Section 4(c) below. Notice of termination pursuant to
Sections 4(b) or 4(c) shall be effective upon receipt and shall indicate the
basis for termination. Upon termination of this Agreement for any reason, the
Orthodontist shall purchase tail insurance coverage for a period of three (3)
years at the Orthodontist's expense.
(b) For purposes of this Agreement, termination may be for
"cause" in the event of the occurrence of any of the following:
(i) The death of the Orthodontist.
(ii) The physical or mental incapacity of the
Orthodontist. The Orthodontist shall be deemed to be
physically or mentally incapacitated for purposes of this
paragraph if by reason of any physical or mental incapacity he
has been unable or it is deemed that he
3
<PAGE> 4
will be unable for a period of at least ninety (90) days to
perform his duties and responsibilities hereunder in a
reasonably satisfactory manner. In the event of any
disagreement between the Orthodontist and the Orthodontic
Entity about whether he is physically or mentally
incapacitated such as to permit the Orthodontic Entity to
terminate his employment pursuant to this paragraph, the
question of such incapacity shall be submitted to an impartial
and reputable physician selected by mutual agreement of the
Orthodontist and the Orthodontic Entity or, failing such
agreement, selected by two physicians (one of which shall be
selected by the Orthodontic Entity and the other by the
Orthodontist). The determination of the question of such
incapacity by such physician shall be final and binding on the
Orthodontist and the Orthodontic Entity for purposes of this
Agreement. The Orthodontic Entity shall pay the reasonable
fees and expenses of such physician.
(iii) Any of (A) the commission by the
Orthodontist of willful misconduct which causes material harm
to the Orthodontic Entity, (B) the conviction of the
Orthodontist for the commission or perpetration by the
Orthodontist of any felony or any act of fraud, or (C)
habitual absenteeism, chronic alcoholism, or drug addiction;
provided, however, that if any such habitual absenteeism,
chronic alcoholism, or drug addiction may reasonably be cured,
the Orthodontist shall have a reasonable time, not exceeding
thirty (30) days, to cure such matter after receiving notice
thereof from the Orthodontic Entity.
(c) For purposes of this Agreement, the Orthodontist may
terminate this Agreement in the event the Orthodontic Entity has committed a
material breach of this Agreement; provided, however, that if such matter may
reasonably be cured, the Orthodontic Entity shall have a reasonable time, not
exceeding ninety (90) days, to cure such matter after receiving notice thereof
from the Orthodontist.
5. PARTIAL RESTRAINT ON POST-TERMINATION COMPETITION.
(a) Orthodontic Entity expects to invest considerable time,
effort, and capital in enhancing the value and desirability of the skills of the
Orthodontist. Both this investment and the Orthodontist's individual
compensation reflect Orthodontic Entity's expectation of receiving a
considerable return from the exclusive use of the Orthodontist's services and
know-how in the future, free from any danger that Orthodontic Entity's
4
<PAGE> 5
competitors may attempt to induce the Orthodontist to leave Orthodontic Entity
and wrongfully gain the benefit of Orthodontic Entity's investment. The partial
restraint set forth in subsection (b) of this Section 5 hereof does not, and
cannot, provide complete protection for Orthodontic Entity's investment,
development efforts, and proprietary information, but Orthodontic Entity
believes that in combination with the other provisions of this Agreement, it is
the most fair and reasonable measure permitted under applicable law to protect
Orthodontic Entity's interests, giving due regard to both the Orthodontist's
interests and the interests of Orthodontic Entity.
(b) Orthodontic Entity requires its orthodontists and
dentists to accept and observe the following partial restraint on
post-termination competition, which Orthodontist agrees to honor:
FOR A PERIOD OF TWO YEARS FOLLOWING THE TERMINATION OF YOUR
EMPLOYMENT, YOU MAY NOT (I) ENGAGE IN ANY NEWSPAPER, PRINT,
RADIO, TELEVISION OR ELECTRONIC ADVERTISING FOR YOUR
ORTHODONTIC OR DENTAL SERVICES IN THE BROADCAST COVERAGE AREA
OF TELEVISION STATIONS IN THE MARKET AREA WHERE THE CENTER
COVERED BY THIS AGREEMENT IS LOCATED, WITHOUT ORTHODONTIC
ENTITY'S PRIOR WRITTEN CONSENT, (II) ACTIVELY SOLICIT OR
DIRECTLY MARKET YOUR ORTHODONTIC OR DENTAL SERVICES (OR THOSE
OF ANY OTHER ORTHODONTIC ENTITY WITH WHICH YOU ARE AFFILIATED
OR EMPLOYED) TO ANYONE WHO WAS YOUR PATIENT (OR A PATIENT OF
THE ORTHODONTIC ENTITY) DURING THE TERM OF THIS AGREEMENT,
(III) PROVIDE ORTHODONTIC OR DENTAL SERVICES TO ANY PATIENTS
WITHIN A TEN (10) MILE RADIUS OF ANY CENTER(S)'S, (IV)
ACTIVELY SOLICIT THE CENTER'S STAFF OR PATIENTS, OR (V)
SOLICIT REFERRALS FROM ANY DENTIST WHO REFERRED ONE OR MORE
PATIENTS TO ORTHODONTIST OR THE ORTHODONTIC ENTITY WITHIN THE
TWO YEARS PRIOR TO SUCH TERMINATION.
The running of the two year period prescribed above shall be tolled and
suspended by the length of time Orthodontist works in circumstances that a court
of competent jurisdiction subsequently finds to violate the terms of this
partial restraint.
6. CONFIDENTIAL INFORMATION. The Orthodontist shall agree to
maintain in strict confidence, and not use or disclose except under the
instruction of the Orthodontic Entity, any confidential business information
comprising confidential information and/or a trade secret of the Orthodontic
Entity or an Affiliate (as hereinafter defined. Trade secrets are property
rights protected by law and, for purposes of this letter, shall have the meaning
provided under applicable law, including, in Florida, Fla. Stat. ch. 688.002.
Some of the information that the Orthodontic Entity treats as trade secrets
includes financial information (revenues,
5
<PAGE> 6
margins, assets, net income, etc.), annual and long-range business plans,
marketing plans and methods, account invoices, training, educational, and
administrative manuals, patient information, employee lists, suppliers,
wholesalers, and future business plans of the Orthodontic Entity. Confidential
information shall also include all information regarding Premier or any
Affiliate, Premier's or any Affiliate's activities, Premier's or any Affiliate's
business or Premier's or any Affiliate's customers or patients that is not
generally known to persons not employed by Premier or an Affiliate, but that
does not rise to the level of a Trade Secret and that is not generally disclosed
by practice or authority of Premier or an Affiliate to persons not employed by
Premier or an Affiliate. Throughout the term of this Agreement and at all times
after the date that this Agreement terminates for any reason, Orthodontist shall
not directly or indirectly transmit or disclose any confidential information or
trade secret to any person, concern or entity, and shall not make use of any
such trade secret, directly or indirectly, for himself or for others, except (i)
to the extent such disclosure is consistent with Orthodontist's duties hereunder
or (ii) for a disclosure that is required by an law or regulation or court
order, in which latter case Orthodontist shall provide Premier prior written
notice of such disclosure and an opportunity to contest such disclosure. Upon
termination of the Term of this Agreement, Orthodontist will return all trade
secrets and all confidential information of the Orthodontic Entity or Premier,
including without limitation, any documents, notes, analyses, compilations or
other materials incorporating or based on any trade secrets or confidential
information of the Orthodontic Entity or Premier. As used in this Agreement, the
term "Affiliate" shall mean (i) each corporation or other business entity
directly or indirectly controlling, controlled by, or under common control with
the Orthodontic Entity or Premier, and (ii) each orthodontic or dental practice
to which Premier provides management or consulting services, the employees and
principals of such practices, and each corporation or other business entity
directly or indirectly controlling, controlled by, or under common control with
each such practice or the principals thereof.
7. WAIVER. Any waiver of any term or condition or any amendment
of this Agreement shall be effective only if in writing and signed by the
parties. The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by either party.
8. PUBLICITY. Following termination of the Orthodontist's
employment, neither party will disparage or injure the reputation of the other
party. This obligation will include, in the Orthodontist's case, refraining from
negative statements about
6
<PAGE> 7
the Orthodontic Entity's methods of doing business, the effectiveness of its
business policies, and the quality of any of its services or personnel. In
addition, neither party will make any statements regarding the other or
regarding the Orthodontist's former employment with the Orthodontic Entity to
any member of the print or broadcast media except after mutual consultation.
9. PATIENT CARE. Nothing in this Agreement is intended to
interfere, or shall be construed as interfering, in any way with the
Orthodontist's ability to independently exercise professional and ethical
judgment in the performance of his patient care responsibilities.
10. MISCELLANEOUS.
(a) This Agreement contains the entire agreement between the
Orthodontic Entity and the Orthodontist with respect to the subject matter
hereof and thereof and supersedes all prior arrangements or understandings with
respect hereto or thereto.
(b) The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision.
(c) Notwithstanding any other term or provision of this
Agreement, all amounts payable to the Orthodontist by the Orthodontic Entity
hereunder shall be subject to the withholding of such sums relating to taxes as
the Orthodontic Entity may reasonably determine it is required to withhold
pursuant to any applicable law or regulation.
(d) All notices pursuant to this Agreement shall be in
writing and sufficient if delivered personally or sent by overnight courier or
registered or certified mail, postage prepaid, addressed as follows:
If to the Orthodontic Entity to:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
If to the Orthodontist to:
-----------------------------
-----------------------------
-----------------------------
7
<PAGE> 8
Either party may by written notice change the address to which notices to such
party are to be delivered or mailed.
(e) The parties acknowledge and agree that any legal
remedies for breach of this Agreement would be inadequate and irreparable harm
shall be presumed. The faithful observance of all covenants in this Agreement is
an essential condition to Orthodontist's employment, and Orthodontic Entity is
depending upon absolute compliance herewith. Damages would be very difficult, if
not impossible, to ascertain if the Orthodontist breaches this Agreement.
Orthodontist acknowledges and agrees that any court of competent jurisdiction
should immediately enjoin any breach of this Agreement upon the request of
Orthodontic Entity, and Orthodontist specifically releases Orthodontic Entity
from the requirement of posting any bond in connection with temporary or
interlocutory injunctive relief, to the extent permitted by law.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida (without respect to its rules
of conflicts of law).
(g) This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same Agreement.
(h) In the event that any provision of this Agreement or the
application thereof to the Orthodontist or any circumstance in any jurisdiction
governing this Agreement shall, to any extent, be invalid or unenforceable under
any applicable statute, regulation or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform to such statute, regulation or rule of law, and the
remainder of this Agreement and the application of any such invalid or
unenforceable provision to parties, jurisdictions or circumstances other than to
whom or to which it is held invalid or unenforceable shall not be affected
thereby nor shall the same affect the validity or enforceability of any other
provision of this Agreement.
(i) 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.
IN WITNESS WHEREOF, the Orthodontic Entity and the Orthodontist have
executed this Agreement under seal as of the day and year first above written.
8
<PAGE> 9
ORTHODONTIC ENTITY:
--------------------------------------
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
ORTHODONTIST:
[SEAL]
-----------------------------
-----------------------------
9
<PAGE> 1
EXHIBIT 10.11
[PREMIER ORTHODONTIC GROUP, INC. LETTERHEAD]
April 18, 1997
Mr. Robert S. Chilton
15916 Daniel Lane
Encino, California 91436
Dear Bob:
I am pleased to formalize and present the following employment offer for the
position of Chief Financial Officer of Premier Orthodontic Group, Inc.
("Company") reporting to me:
COMPENSATION:
- -- Base Salary of $11,250 per month.
- -- Bonus equal to 30% of annualized base salary upon the achievement of
Company targets established by the Board of Directors and Management of the
Company.
STOCK OPTIONS:
- -- A stock option grant for 50,000 shares of common stock of Company, or its
successor, will be granted on the effective date of the initial public
offering of the common stock of Company, or its successor. Vesting will be
25% on such date of grant and 25% on each anniversary of such date.
COMPANY BENEFITS:
- -- Participation in all benefits made generally available to Company employees
from time to time, subject to eligibility requirements.
- -- The Company will reimburse your COBRA insurance costs for 3 months.
START DATE:
- -- May 12, 1997
INDEMNIFICATION:
- -- The Company will indemnify you in accordance with its Bylaws, in effect
from time to time. A copy of Article VI of the Bylaws, Indemnification of
Directors and Officers, is attached hereto.
<PAGE> 2
Mr. Robert S. Chilton
April 18, 1997
Page 2 of 2
It is the policy of the Company that all employment is for an unspecified
period, and may be discontinued at will by you or the Company, at any time and
for any reason, with or without cause. If these terms are acceptable, please
sign in the space provided below and return one copy of this letter to me.
I am excited about the opportunity to work with you. Please feel free to call
me with any questions.
Sincerely,
/s/ Sam Westover
- -----------------------------------
Sam Westover
cc: Colleen Hulce
Agreed:
/s/ Robert S. Chilton Date: April 23, 1997
- ----------------------------------- -------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY LIST
OA Equipment, Inc. IN
Crawford Asset Subsidiary, Inc. GA
Rodeffer & Garner Asset Subsidiary, Inc. FL
Halliburton Asset Subsidiary, Inc. TN
Horvath Asset Subsidiary, Inc. GA
Lorentz Asset Subsidiary, Inc. MS
Mitchell Asset Subsidiary, Inc. GA
Pence Asset Subsidiary, Inc. IN
Philipp Asset Subsidiary, Inc. AL
Pickron Asset Subsidiary, Inc. GA
Only Orthodontics of South Miami, Inc. FL
Rykovich Asset Subsidiary, Inc. IN
Silver Asset Subsidiary, Inc. GA
Smernoff Asset Subsidiary, Inc. VA
Yaffey Asset Subsidiary, Inc. FL
Yurfest Asset Subsidiary, Inc. GA
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ORTHALLIANCE, INC. FOR THE TWO MONTHS ENDED DECEMBER 31,
1996 AND THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 2-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 JUN-30-1997
<PERIOD-START> OCT-21-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 (4,090)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 (4,090)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 (4,090)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 .37
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT OF DIRECTOR NOMINEE
The undersigned agrees to serve as a Director of OrthAlliance, Inc.
(the "Company") effective upon the closing of the initial public offering of the
Company's Class A Common Stock and consents to being named as a person about to
become a Director in the Company's registration statements filed with the
Securities and Exchange Commission.
/s/ Douglas D. Durbin, D.M.D., M.S.D.
-------------------------------------
<PAGE> 2
CONSENT OF DIRECTOR NOMINEE
The undersigned agrees to serve as a Director of OrthAlliance, Inc.
(the "Company") effective upon the closing of the initial public offering of the
Company's Class A Common Stock and consents to being named as a person about to
become a Director in the Company's registration statements filed with the
Securities and Exchange Commission.
/s/ Randy Schmidt
-----------------
<PAGE> 3
CONSENT OF DIRECTOR NOMINEE
The undersigned agrees to serve as a Director of OrthAlliance, Inc.
(the "Company") effective upon the closing of the initial public offering of the
Company's Class A Common Stock and consents to being named as a person about to
become a Director in the Company's registration statements filed with the
Securities and Exchange Commission.
/s/ W. Dennis Summers
---------------------
<PAGE> 4
CONSENT OF DIRECTOR NOMINEE
The undersigned agrees to serve as a Director of OrthAlliance, Inc.
(the "Company") effective upon the closing of the initial public offering of the
Company's Class A Common Stock and consents to being named as a person about to
become a Director in the Company's registration statements filed with the
Securities and Exchange Commission.
/s/ Craig L. McKnight
---------------------
<PAGE> 5
CONSENT OF DIRECTOR NOMINEE
The undersigned agrees to serve as a Director of OrthAlliance, Inc.
(the "Company") effective upon the closing of the initial public offering of the
Company's Class A Common Stock and consents to being named as a person about to
become a Director in the Company's registration statements filed with the
Securities and Exchange Commission.
/s/ U. Bertram Ellis
--------------------
