<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1997.
REGISTRATION NO. 333-27143
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT NO. 4 TO
FORM S-1
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 organization) Classification Code Number) identification no.)
</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:
<TABLE>
<S> <C>
PAUL A. QUIROS, ESQ. F. MITCHELL WALKER, ESQ.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. BASS, BERRY & SIMS PLC
FIRST UNION PLAZA, SUITE 1400 2700 FIRST AMERICAN CENTER
999 PEACHTREE STREET, N.E. NASHVILLE, TENNESSEE 37238
ATLANTA, GEORGIA 30309 (615) 742-6200
(404) 817-6000 (615) 742-6293 (FAX)
(404) 817-6050 (FAX)
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 12, 1997
PROSPECTUS
2,600,000 SHARES
[ORTHALLIANCE LOGO]
CLASS A COMMON STOCK
---------------------
The 2,600,000 shares of Class A Common Stock ("Common Stock") offered
hereby are being sold by OrthAlliance, Inc. (the "Company" or "OrthAlliance").
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock. It is currently anticipated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. The Common Stock and the Company's Class B Common Stock are each
entitled to one vote per share and will vote as a single class on all matters
presented to the Company's stockholders. The Company has made application for
the Common Stock to be listed for trading on The Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "ORAL."
The Company has filed a shelf registration statement with the Securities
and Exchange Commission relating to the separate offering of up to 2,500,000
shares of Common Stock to be used in connection with future affiliations with
Allied Practices and resales of the shares issued thereunder by the recipients
of such shares.
---------------------
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.
<TABLE>
<CAPTION>
=================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
=================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $1.7 million payable by the Company.
(3) The Company has granted the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
390,000 additional shares of Common Stock on the same terms and conditions
as set forth above. If all such shares are purchased by the Underwriters,
the total Price to Public will be $ , the total Underwriting
Discount will be $ and the total Proceeds to Company will be
$ . See "Underwriting."
---------------------
The shares of Common Stock are offered subject to receipt and acceptance by
the several Underwriters, to prior sale and to the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares of Common Stock
will be available for delivery on or about , 1997.
---------------------
J.C.Bradford & Co. Oppenheimer & Co., Inc.
, 1997
<PAGE> 3
[ORTHALLIANCE, INC. MAP]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZATION AND SHORT-COVERING TRANSACTIONS. FOR A DESCRIPTION OF
THESE ACTIVITIES SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
Simultaneously with and as a condition to the closing of the Offering, 56
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"). The number of shares
of Common Stock issued in connection with the Transfers will depend on the
initial public offering price of the Common Stock.
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 Offering (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 recently 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 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 this Offering, 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 56
Founding Practices, which include 83 orthodontists operating 149 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 upon 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 Company receives a management fee based on a percentage of the revenue of
each Founding Practice. For the year ended December 31, 1996, the Founding
Practices had average practice revenues of approximately $1,052,000, compared to
average practice revenues for the orthodontic industry as a whole, estimated by
the Company to be approximately $545,000.
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. Annual gross revenues for the
industry are approximately $3.5 billion, which have grown at an average rate of
7.5% per year in recent years (as derived from the 1992 Journal of Clinical
Orthodontists Orthodontic Practice Study (the "JCO Study") and the 1995 JCO
Study).
3
<PAGE> 5
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;
- 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.
PENDING TRANSFERS
The Company plans to use shares subject to its shelf registration statement
filed with the Securities and Exchange Commission (the "Commission") relating to
the separate offering of up to 2,500,000 shares of Common Stock (the "Shelf
Registration") to acquire certain operating assets of, or the stock of entities
holding certain operating assets of, additional orthodontic practices and enter
into long-term management services agreements with such entities. The Company
has entered into negotiations with four orthodontic practices with four
orthodontists operating 12 offices in four states (collectively, the "Pending
Transfers"). The aggregate consideration to be paid by the Company with respect
to the 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 following the closing of the Offering, 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 Company intends to
close the Pending Transfers in accordance with Staff Accounting Bulletin No. 48,
"Transfers of Nonmonetary Assets by Promoters or Shareholders" ("SAB 48"). Each
of the Pending Transfers is subject to, among other conditions, execution of
definitive agreements, the completion of the Offering, the effectiveness of the
Shelf Registration and satisfactory due diligence review of each practice by the
Company.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the
Company.................. 2,600,000 shares
Common Stock to be
outstanding after the
Offering................. 10,714,934 shares(1)
Class B Common Stock to be
outstanding after the
Offering................. 250,000 shares
Use of Proceeds............ To fund the cash portion of the consideration paid
to the Founding Practices; to repay certain
indebtedness; and for general corporate purposes,
which are expected to include future acquisitions
(including the Pending Transfers) and certain of
the development costs of satellite offices. See
"Use of Proceeds."
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
this Prospectus, 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 this
Prospectus (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. Each
Conversion Price will be
5
<PAGE> 7
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 in the
Offering, and each of the subsequent Conversion
Prices is equal to 120% of the preceding Conversion
Price. Therefore, if the price to public in the
Offering is the mid-point of the estimated initial
public offering price range ($11.00), 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 $16.50,
$19.80, $23.76, $28.51 and $34.21, respectively. If
any Conversion Prices are attained within 180 days
after the date of this Prospectus, 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 this Prospectus. 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 on or before the Final Conversion
Date.
Proposed Nasdaq National
Market symbol............ ORAL
- ---------------
(1) Includes (i) 1,750,000 shares of Common Stock issued by OrthAlliance in
connection with the Merger, and (ii) 6,364,934 shares of Common Stock to be
issued in connection with the Transfers, but excludes 1,197,237 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. The actual
number of shares issued in connection with the Transfers will be determined
by dividing $70.0 million by the initial public offering price. 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 (i) the Underwriters' over-allotment option is not
exercised, (ii) the consummation of the Merger and the Transfers and (iii) an
initial offering price of $11.00 per share (the mid-point of the estimated
initial public offering price range). 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 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)
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 effects of the Merger, the Transfers 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
---------------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenue...................................................... $ -- $ --
Total expenses(2)................................................ -- 6,565
Operating loss................................................... -- 6,565
Net loss............................................... $ -- $ 6,565
============= ==========
Net loss per share..................................... $ -- $ .60
============= ==========
Number of shares used in net loss per share calculation.......... -- 11,014,889
============= ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
HISTORICAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ -- $ 7,376
Working capital..................................................... (900) 11,963
Total assets........................................................ -- 17,311
Long-term debt...................................................... -- --
Stockholders' (deficit) equity...................................... (900) 14,205
</TABLE>
- ---------------
(1) OrthAlliance has conducted no significant operations to date and will not
conduct significant operations until the Merger, the Transfers and the
Offering 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 at an assumed initial
public offering price of $11.00 per share (the mid-point of the estimated
initial public offering price range) and the application of the estimated
net proceeds therefrom. See "Use of Proceeds" and 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
8
<PAGE> 10
retaining, hiring and training key personnel, and risks associated with the
assumption of certain contingent legal 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
9
<PAGE> 11
those states. In addition, there can be no assurance that the laws and
regulations of states in which the Founding 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
10
<PAGE> 12
insurance for itself (with limits and retention amounts to be negotiated), and
intends to be named as an additional 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 Offering Payable to Founding Practices and
Affiliates. Approximately $13.9 million of the net proceeds of this Offering
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 Offering will be used to pay
accrued consulting fees to certain affiliates of the Company. In addition,
approximately $3.3 million of the net proceeds from the Offering will be used to
repay indebtedness assumed by the Company in connection with the Merger and the
Transfers. See "The Company," "Use of Proceeds" and "Certain Transactions."
Control by Existing Management and Stockholders. Following the completion
of the Transfers, the Merger and the Offering, the Allied Orthodontists, the
executive officers and directors of the Company and entities affiliated with
such persons will beneficially own approximately 70.3% 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 70.8% 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 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 this Offering. Upon the closing of this Offering, the owners of
the Founding Practices will receive, in the aggregate, 6,364,934 shares of
Common Stock (assuming an initial public offering price of $11.00) as a portion
of the consideration for the affiliation of their orthodontic practices with the
Company. The 6,364,934 shares received by the owners of the Founding Practices
are not being offered by this Prospectus; 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
11
<PAGE> 13
following the closing of the Transfers. See "Description of Capital
Stock -- Registration Rights." Certain other stockholders of OrthAlliance will
hold, in the aggregate, an 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 for a period of 365
days (the "Lock-up Period") after the date hereof 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. See "Underwriting." 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 Company has filed the Shelf Registration for use in connection with
future acquisitions. These shares 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 this Prospectus.
No Prior Public Market; Possible Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Common Stock. The Company will
file an application for the Common Stock to be approved for quotation on the
Nasdaq National Market, however, there can be no assurance that, following the
Offering, a regular trading market for the Common Stock will develop or be
sustained. The initial public offering price has been determined by negotiation
among the Company and the Representatives and may bear no relationship to the
market price of the Common Stock after this Offering. See "Underwriting." 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.
Immediate and Substantial Dilution; Absence of Dividends. The purchasers
of the Common Stock offered hereby will experience immediate dilution of $9.70
per share in the net tangible book value of such shares, because the initial
public offering price is substantially higher than the pro forma net tangible
book value per share. Existing stockholders will receive an increase of $2.58
per share in the pro forma net tangible book value of their shares. In the event
the Company issues additional shares of Common Stock in the future, including
shares which may be issued in connection with future affiliations, purchasers of
Common Stock in this Offering may experience further dilution in the net
tangible book value per share of the Common Stock. See "Dilution." 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
12
<PAGE> 14
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 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
Allied 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 recently 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 Offering, Premier and USOC will be
merged with and into OrthAlliance (previously defined as the Merger), and
pursuant thereto the Company will succeed to the rights of Premier and USOC
under the agreements with the Founding Practices and 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 Offering,
OrthAlliance will acquire, by transfer pursuant to SAB 48, certain operating
assets or the stock of entities holding certain operating assets of, the 57
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 $83.9 million, composed of 6,364,934 shares of Common Stock
(assuming $11.00 per share, the mid-point of the estimated initial public
offering price range) and, approximately $13.9 million in cash, all of which is
payable at the closing of the Transfers. The actual number of shares of Common
Stock issued to the Founding Practices in the Transfers will be determined by
dividing $70.0 million by the initial public offering price. In the event the
price to the public is higher than the mid-point of the estimated initial public
offering price range, the aggregate number of shares will be reduced
accordingly, and in the event the price to the public is lower, the aggregate
number of shares will be increased accordingly. Cash proceeds from the Offering
will be used to pay the cash portion of the consideration. See "Certain
Transactions," "Use of Proceeds," "Business -- Agreements with Allied Practices
and Allied Orthodontists," and the Unaudited Pro Forma Combined Balance Sheet
and the notes thereto.
The Company maintains its principal executive office at 23848 Hawthorne
Boulevard, Suite 200, Torrance, California 90505, and its telephone number is
(310) 791-5656.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby are estimated to be approximately $24.9 million (approximately $28.9
million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $11.00 per share and after
deducting underwriting discounts and other estimated offering expenses payable
by the Company.
The Company intends to use the net proceeds from the Offering as follows:
(i) approximately $13.9 million will be used to pay the cash portion of the
consideration paid to the Founding Practices; (ii) approximately $3.3 million
will be used to repay certain indebtedness assumed by the Company in the Merger
and the Transfers; (iii) approximately $900,000 will be used to pay accrued
consulting fees; and (iv) the balance will be used for general corporate
purposes including financing the expansion of the Company's business through
affiliations with additional orthodontic practices and the development of
satellite offices for the Allied Practices. Currently, the Company has entered
into negotiations to acquire net assets of four additional orthodontic entities.
The aggregate consideration to be paid by the Company with respect to the
Pending Transfers will be approximately $3.1 million, of which up to 20% is
payable in cash and the remainder with shares of Common Stock issued pursuant to
the Shelf Registration. The actual number of shares to be issued will be
determined based upon the market price of the Common Stock, calculated pursuant
to the following formula: (i) the initial public offering price for Pending
Transfers closed within seven days following the closing of the Offering, 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 Company intends to close the Pending Transfers in accordance with SAB 48.
The indebtedness to be repaid consists of, among other things, certain debt
incurred by Premier to finance organizational costs and working capital (the
"Premier Note"). The principal amount of the Premier Note is $1.01 million and
it accrues interest at a specified prime rate plus one percent (1.0%). Following
completion of the Offering, the principal and interest due and payable is
anticipated to be approximately $1.06 million. See "Certain Transactions."
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
As a newly formed corporation, 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."
15
<PAGE> 17
DILUTION
As of June 30, 1997, after giving effect to the Merger and the Transfers,
the pro forma net tangible book value of the Company was $(10.7) million, or
$(1.28) per share. The pro forma net tangible book value per share is determined
by dividing the Company's pro forma net tangible book value (total tangible
assets less total liabilities) by the number of shares of Common Stock and Class
B Common Stock to be outstanding after the Merger and the Transfers. After
giving effect to the sale by the Company of the 2,600,000 shares of Common Stock
offered hereby and after deducting underwriting discounts and commissions and
estimated offering expenses, the pro forma net tangible book value of the
Company as of March 31, 1997 would have been $14.2 million, or $1.30 per share.
This represents an immediate increase in net tangible book value of $2.58 per
share to existing stockholders and an immediate dilution in net tangible book
value of $9.70 per share to new investors purchasing shares of Common Stock in
this Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.............................. $11.00
Pro forma net tangible book value before Offering................ $(1.28)
Increase attributable to new investors........................... 2.58
------
Pro forma net tangible book value after Offering................... 1.30
------
Dilution in net tangible book value to new investors............... $ 9.70
======
</TABLE>
The following table sets forth on a pro forma basis, giving effect to the
Merger and Transfers as of June 30, 1997, the number of shares of Common Stock
and Class B Common Stock purchased from the Company, the total consideration
paid to the Company, and the average price per share paid to the Company by
existing stockholders and the new investors purchasing shares of Common Stock in
this Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 8,364,934 76.3% $(10,693,000) (59.7)% $ (1.28)
New investors................... 2,600,000 23.7 28,600,000 159.7 11.00
---------- ------- ------------ -------
Total(2).............. 10,964,934 100.0% $ 17,907,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of OrthAlliance and the Founding Practices before the
Offering, adjusted to reflect the payment of $13.9 million in cash as
partial consideration for the Transfers. See "Use of Proceeds" and
"Capitalization."
(2) Does not include 1,197,237 shares of Common Stock issuable upon the exercise
of 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."
16
<PAGE> 18
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 hereby (assuming an initial public
offering price of $11.00 per share) and the application of the net proceeds
therefrom. See "Use of Proceeds." 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..................... -- 3,328 --
---------- ------------ -----------------
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 June 30, 1997(3); 8,114,934 issued
and outstanding pro forma; 10,714,934 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 June 30, 1997; 250,000 issued and
outstanding pro forma and as adjusted(4).......... -- -- --
Additional paid-in capital.......................... -- 9,742 34,637
Accumulated deficit(5).............................. -- (20,443) (20,443)
---------- ------------ -----------------
Total Stockholders' (deficit) equity........... -- (10,693) 14,205
---------- ------------ -----------------
Total capitalization...................... -- $ (7,365) $ 14,205
======= ========== =============
</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 at an assumed initial public offering price of $11.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(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 1,197,237 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 $13.9 million representing payments to certain of the Founding Practices.
17
<PAGE> 19
SELECTED FINANCIAL DATA
(IN THOUSANDS)
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 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).............................................. -- 6,565
Operating loss................................................. -- 6,565
Net loss............................................. $ -- $ 6,565
============ ==========
Net loss per share................................... $ -- $ .60
============ ==========
Number of shares used in net loss per share calculation........ -- 11,014,889
============ ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
HISTORICAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ -- $ 7,376
Working capital........................................................ (900) 11,963
Total assets........................................................... -- 17,311
Long-term debt, less current portion................................... -- --
Stockholders' (deficit) equity......................................... (900) 14,205
</TABLE>
- ---------------
(1) OrthAlliance has conducted no significant operations to date and will not
conduct significant operations until the Merger, the Transfers and the
Offering 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 the 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 at an assumed initial
public offering price of $11.00 per share (the mid-point of the estimated
initial public offering price range) and the application of the estimated
net proceeds therefrom. See "Use of Proceeds" and Unaudited Pro Forma
Combined Balance Sheet and the notes thereto.
18
<PAGE> 20
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 will
enter into 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 Allied Practice and will assume substantially all
operating expenses to third parties of the Allied 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 Allied 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 Allied 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
Allied 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 Allied 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
19
<PAGE> 21
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 Allied 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 Allied Practice and such expenses are
paid from funds generated by such Allied Practice. The Company generally is
required to employ the personnel for operation of the Allied 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 Allied Practices records and
advise each Allied Practice regarding practice expansion. In addition, the
Company is required to pay the operating expenses of each Allied 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 Allied 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 Allied Practice. In the event of a quarterly adjustment to the Allied
Practice's Adjusted Patient Revenue, amounts owing to an Allied Practice (as a
result of such adjustment) will be remitted by the Company to the Allied
Practice. Any amounts owing to the Company by an Allied Practice will be deemed
an operating expense of the Allied Practice to be paid to the Company from the
Adjusted Patient Revenue of the Allied Practice.
Each Management Agreement provides that the Company advance funds, if
required, to the Allied Practice to pay operating expenses of such practice,
including Allied Practice operating expenses incurred by the Company and certain
expenses required to be paid by the Allied Practice. Advances will be evidenced
by a note from the Allied 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
an Allied Practice to be incurred by the Company and to be paid from the Allied
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 Offering. See
"Liquidity and Capital Resources."
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.
It is currently anticipated that the Company's future acquisitions of certain of
the assets and liabilities of Allied Practices may 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; (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.
20
<PAGE> 22
RESULTS OF OPERATIONS
OrthAlliance has conducted no significant operations to date and will not
conduct significant operations until the Transfers, the Merger and the Offering
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 $10.6 million, including
the accrual of $13.9 million for cash dividends payable to the Founding
Practices.
The Company anticipates the primary uses of capital will include
affiliation with orthodontic practices (including the Pending Transfers, the
cash portion of which could be as much as $620,000) , 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 Allied 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 Offering, after application of
the use of proceeds, 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 the next 18 months. 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 is
concurrently with the Offering registering 2,500,000 additional shares of Common
Stock pursuant to the Shelf Registration, which when combined with the Company's
cash resources will be used to support the Company's planned acquisition
program.
21
<PAGE> 23
BUSINESS
GENERAL
OrthAlliance was recently 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 this Offering, 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, 56 Founding Practices, which include 83
orthodontists operating 149 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. The Company receives a management fee based on a percentage of the
revenue of each Founding Practice. For the year ended December 31, 1996, the
Founding Practices had average practice revenues of approximately $1,052,000,
compared to average practice revenues for the orthodontic industry as a whole,
estimated by the Company to be approximately $545,000.
Management believes that the Company's management, marketing, recruiting
and growth strategies, as applied to the Founding 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 fee-based management services to its 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.
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<PAGE> 24
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, 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.
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<PAGE> 25
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. 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
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<PAGE> 26
Company's revenues and profits and gain market share, management intends to
initiate a growth strategy 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 Company has filed the Shelf
Registration for shares of Common Stock to 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
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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.
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............................................ 9 16 14
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.................................... 85 149 124
============ ======== ========
</TABLE>
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(1) The Founding Practices include an aggregate of 83 Allied Orthodontists, two
of whom operate in two states.
AGREEMENTS WITH ALLIED PRACTICES AND ALLIED ORTHODONTISTS
Each Allied Practice has entered into three material agreements in
connection with the Transfers: (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 Allied
Practice, or an agreement and plan of reorganization, whereby the Allied
Practice transfers certain assets to OrthAlliance; (ii) either a
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<PAGE> 28
Service Agreement or a Consulting Agreement (depending upon the applicable
regulatory requirements), whereby OrthAlliance agrees to provide management or
consulting services to the Allied Practice; and (iii) an Employment Agreement
between the Allied Practice and each related Allied Orthodontist who is an
equity holder in the 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 an Allied Practice and
either USOC or Premier, will become agreements of OrthAlliance and will be
effective upon the closing of the Offering.
Acquisition Agreements. The Company will acquire by transfer (in
accordance with SAB 48) certain operating assets or stock of each Allied
Practice pursuant to an asset purchase and sale agreement, an agreement and plan
of reorganization or a stock purchase and sale agreement. Each asset purchase
and sale agreement generally provides for the sale by the Allied 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 Allied 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 Allied Practice, with the
remainder payable in shares of Common Stock. The aggregate consideration paid by
the Company in connection with the Transfers is approximately $83.9 million.
Certain liabilities, including patient prepayments, of the Allied Practices have
been assumed totaling $4.5 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 Allied 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
Allied Practice to OrthAlliance, the cancellation or retirement of each share of
stock in an entity holding certain assets of the Allied 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 Allied 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."
Service Agreements. The parties to each Service Agreement include the
Company, as successor through the Merger, and the Allied 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 Allied 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 Allied Practice's files and
records, including patient records where permitted by applicable law. If the
Allied Practice lacks sufficient funds to pay its current expenses, the Company
is also required to advance funds to the Allied 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 Allied 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 Allied 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 Allied 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 Allied Practice's consent to any entity under
common control with the Company. The Company and the Allied 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
Allied Practice's intentional or negligent acts or omissions. In the case of the
Allied 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 Allied 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 Allied Practice in the event the Allied Practice is unable to pay
its current expenses, termination of the Consulting Agreement, repurchase of
assets and assumption of liabilities by the Allied Practice upon expiration or
termination, assignment, and indemnification.
The services provided by the Company to the Allied Practice under each
Consulting Agreement generally include consulting with respect to equipment and
office needs; preparing staffing models appropriate for an Allied 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 Allied 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.
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
Allied 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
Allied Practice with state and local regulations applicable to the practice of
orthodontics and with licensing or certification requirements. 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. Each Allied 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 an Allied Practice or who provides orthodontic services through
an Allied Practice for more than 10 days a month is required to execute an
employment agreement with the Allied Practice. Each employment agreement
generally provides that the Allied Orthodontist will perform professional
services for the Allied Practice for a period of five years, subject to prior
termination, (i) for cause by the Allied 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 Allied 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 the market in which the Allied Practice
operates an office and will limit the methods of advertising in the area in
which an Allied Practice is located.
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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 Allied 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 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.
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EMPLOYEES
Upon completion of the Transfers and the Merger, OrthAlliance will employ
an aggregate of approximately 565 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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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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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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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 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 of the Offering and (ii) 20%
per year on the first through the fourth anniversary dates of the date of this
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<PAGE> 35
Prospectus. These options expire ten years from the date of grant and are
exercisable at the initial public offering price. 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 Offering.
STOCK PLANS
OrthAlliance has adopted the 1997 Employee Stock 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 Plan. The Board of Directors has adopted and the
stockholder has approved the Company's 1997 Employee Stock 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
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appointment. Commencing in 1998, each person who continues to serve as an
Outside Director following the 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 for expenses 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 provide that the Company may 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.
35
<PAGE> 37
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 Offering. 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 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 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(1)........................... 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).................................. 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
Paul Yurfest............................................ 2,478 354
Michael J. DeVito....................................... 1,488 211
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
CLASS B
NAME COMMON STOCK COMMON STOCK
-------------------------------------------------------- ------------ ------------
<S> <C> <C>
Don E. Lahrman.......................................... 991 142
Michael J. DeVito, Smith Barney
Prototype PS Plan FBO Michael J. DeVito TTEE.......... 991 142
------------ ------------
TOTAL......................................... 1,225,000 175,000
</TABLE>
- ---------------
(1) The members of Whitetail Investments, LLC are Clifford G. McGehee, Jan L.
Baxt Profit Sharing Trust, Katherine G. Worth, Marilyn M. Elkins, Robert D.
Garces, Dorothy B. McGehee and Thomas R. Fuller. The shares will be
distributed as provided in the operating agreement relating to Whitetail
Investments, LLC.
(2) The members of MC Investments, LLC are Howard C. Chandler, Jr. and Chris A.
Mack. The shares will be distributed as provided in the operating agreement
relating to MC Investments, LLC.
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(1)
------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Sam Westover........................................... 75,070 24,000
Randall K. Bennett..................................... 56,302 18,000
J. Dalton Gerlach...................................... 18,768 6,000
Paul H. Hayase......................................... 18,768 6,000
--------------- -------
TOTAL........................................ 168,908 54,000
--------------- -------
CLASS B MEMBERS
-------------------------------------------------------
Victor S. Sands........................................ 36,364 --
Deon Benson............................................ 9,091 --
Oles B. Drobocky....................................... 36,364 --
Lawrence Hutta......................................... 18,182 --
Thomas Pickron......................................... 27,273 --
J. Dalton Gerlach...................................... 54,545 --
Len Kessler............................................ 18,182 --
Raymond McLendon....................................... 9,091 --
--------------- -------
TOTAL........................................ 209,092 --
</TABLE>
- ---------------
(1) Assumes an initial public offering price of $11.00 per share and assumes
redemption of all Class A and Class B members' interests immediately
following the closing of the Offering. 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.
37
<PAGE> 39
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.
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 Offering, 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 Offering. See "Use of Proceeds."
Simultaneously with and as a condition to the closing of the Offering,
OrthAlliance will close the Transfers pursuant to which it will acquire certain
operating assets of, or the stock of an entity holding certain assets of, 56
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 $83.9 million, consisting of 6,364,934
shares of Common Stock (assuming an initial public offering price of $11.00 per
share and approximately $13.9 million in cash, all of which is payable upon
closing of the Transfers. The aggregate consideration to be paid for the
Founding Practices will not change; however, the actual number of shares of
Common Stock issued to the Founding Practices will increase or decrease
depending upon the public offering price of the Common Stock in the Offering.
The exact number of shares will be determined by dividing $70.0 million by the
price to the public in the Offering. The cash portion of the consideration will
be paid from proceeds received by the Company in the Offering. 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 211,948, 101,965, 179,948 and 345,290
shares of Common Stock, respectively, and $582,857, $271,286, $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(2)
- ---------------------------------- -------------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Sammy A. Caves, D.M.D. ........... $ 237,993 $ 34,352 $ 648,451 $ 2,593,805 235,800
Keith S. Crawford, D.M.D. ........ 8,938 68,847 0 859,442 78,131
Michael J. DeVito, D.D.S. ........ 218,518 7,513 100,000 730,366 66,397
Douglas D. Durbin, D.M.D.,
M.S. ........................... 272,303 16,108 271,286 1,121,612 101,965
John Huang, D.D.S. ............... 159,924 9,461 0 823,406 74,855
Daniel J. Enger, Jr., D.D.S. ..... 156,013 0 50,000 835,973 75,998
David Tod Garner, D.D.S. ......... 113,037 34,083 0 945,015 85,910
Suellen Rodeffer, D.D.S. ......... 113,037 34,083 0 945,015 85,910
Frederick A. Ghiz, D.D.S.,
M.S. ........................... 125,053 117,900 123,427 400,920 36,447
Paul J. Giorgetti, D.D.S. ........ 23,862 2,385 83,862 335,450 30,495
John Goode, D.D.S. ............... 47,231 103,492 215,825 863,299 78,482
Michael D. Goodwin, D.D.S.,
M.S. ........................... 203,705 208,421 119,852 346,029 31,457
Jack L. Green, Jr., D.D.S. ....... 84,632 83,567 0 1,260,673 114,607
William Griffin, D.D.S. .......... 127,226 0 195,647 782,587 71,144
Donald R. Halliburton, D.D.S. .... 85,214 11,627 340,555 1,362,219 123,838
John E. Horvath, D.D.S. .......... 92,508 82,406 196,286 746,020 67,820
Stuart Kimmel, D.D.S. ............ 60,386 7,902 215,299 861,195 78,290
Don E. Lahrman, D.D.S., M.S.D. ... 79,042 123,604 131,537 526,150 47,832
</TABLE>
38
<PAGE> 40
<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(2)
- ---------------------------------- -------------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Causey C. Lee, D.D.S. ............ 227,024 27,209 180,593 707,604 64,328
Robert P. Lorentz, D.D.S., M.S. . 88,663 27,622 230,031 920,124 83,648
George T. Mitchell, D.D.S. ....... 78,766 47,714 140,535 562,141 51,104
Winston C. Morris, D.M.D. ........ 123,211 95,937 177,912 649,874 59,079
R. O. Parsons, D.M.D., M.S.D. .... 675,443 0 633,223 2,532,891 230,263
Ben B. Pence, D.M.D. ............. 36,727 55,337 292,378 1,169,513 106,319
Ronald G. Philipp, D.M.D. ........ 18,231 47,356 77,306 695,751 63,250
R. N. Pickron, D.D.S. ............ 951,043 333,574 998,501 3,798,193 345,290
Greg A. Shoup, D.D.S. ............ 276,109 96,844 289,887 1,102,701 100,246
Richard L. Rothstein, D.M.D. ..... 202,290 95,211 240,764 874,908 79,537
Victor S. Sands, D.D.S. .......... 72,670 0 595,128 2,380,512 216,410
Randall A. Schmidt, D.D.S. ....... 219,686 94,682 107,432 1,979,429 179,948
Thomas W. Surber, D.D.S. ......... 221,451 95,442 216,590 1,887,033 171,548
Gregory P. Scott, D.D.S. ......... 41,289 0 144,527 818,984 74,453
Arthur B. Silver, D.D.S. ......... 67,094 1,629 176,615 706,460 64,224
Gerald N. Smernoff, D.D.S. ....... 80,186 0 268,228 1,072,913 97,538
Douglas E. Smith, D.D.S. ......... 298,960 0 466,662 1,866,649 169,695
D. B. Snead, D.M.D. .............. 144,955 202,055 142,624 570,495 51,863
Gilbert H. Snow, D.D.S. .......... 94,273 17,512 624,200 2,496,799 226,982
Mark D. Thebaut, D.D.S. .......... 86,784 132,081 173,464 648,549 58,959
Stephen C. Trawick, D.D.S. ....... 72,604 28,811 0 1,178,687 107,153
Baron V. Whateley, D.D.S., M.S. . 57,671 46,502 118,257 473,027 43,002
Mark A. Yaffey, D.D.S. ........... 39,394 14,301 193,084 772,336 70,212
Paul Yurfest, D.D.S. ............. 241,479 2,094 243,909 975,638 88,694
Randall K. Bennett, D.D.S. ....... 32,860 215,271 582,857 2,331,429 211,948
Kenneth Brehnan, D.D.S. .......... 17,925 80,475 335,548 1,342,192 122,017
John W. Bryant, D.D.S. ........... 14,854 34,208 142,053 568,215 51,656
Raymond Fortson, D.D.S. .......... 98,633 166,548 0 1,535,638 139,603
Joseph W. Gray, D.D.S., M.S. ..... 86,095 274,870 359,061 1,278,149 116,195
Gregg G. Hipple, D.D.S., M.S. .... 128,006 66,308 0 2,301,200 209,200
Robert E. Hirschfield, D.D.S. .... 152,238 167,371 418,714 1,674,855 152,260
Joseph C. Jackson, Jr., D.D.S. ... 211,086 152,295 213,603 708,383 64,398
Malko Karkenny, D.D.S. ........... 9,350 4,727 155,922 623,687 56,699
Richard C. Hayes, D.D.S., M.S..... 9,350 4,727 155,922 623,687 56,699
Joel Martinez, D.D.S. ............ 363,626 45,538 326,347 1,305,389 118,672
B. C. McConnell, Jr., D.D.S. ..... 177,297 19,604 287,017 1,148,068 104,370
Raymond A. McLendon, D.D.S. ...... 62,306 14,971 0 484,098 44,009
Brian J. Nettleman, D.D.S. ....... 0 145,620 273,363 1,007,572 91,597
Robert C. Penny, D.D.S., M.S. .... 67,970 56,946 235,751 943,006 85,728
A. Paul Serrano, D.D.S. .......... 118,824 193,721 463,954 1,855,817 168,711
Lesley O. Starnes, D.D.S., M.S. .. 51,538 49,040 213,605 854,422 77,675
Keith J. Stewart, D.D.S. ......... 19,913 120,831 0 1,124,849 102,259
Cary A. Williams, D.M.D. ......... 4,828 107,130 280,809 1,123,237 102,112
-------------- ---------- ------------ ----------- ---------
TOTAL................... $8,251,323 $4,546,096 $ 13,877,523 $70,014,278 6,364,934
=========== ========= ========== ========== ========
</TABLE>
- ---------------
(1) Assets to be contributed reflect the historical book value of the assets of
each practice, including their patient receivable balance, as of December
31, 1996. Patient prepayments are included in debt and liabilities assumed.
See "Business -- Agreements with Allied Practices and Allied
Orthodontists -- Acquisition Agreements."
(2) Assumes an initial offering price of $11.00, the mid-point of the estimated
initial public offering price range.
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
39
<PAGE> 41
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 Offering and will be paid from
the proceeds received in the Offering. See "Use of Proceeds." The payment of
this consulting fee is directly related to the services performed by Mr. Wilfong
in connection with the Offering. 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 initial public offering price. OrthAlliance will record compensation
expense related to this warrant. A warrant granted to Mr. Wilfong by 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 initial public offering price net of the
underwriting discount. Both of these warrants are exercisable for a five-year
term commencing on the date of this Prospectus. 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 Offering and will be paid from the proceeds received in
the Offering. See "Use of Proceeds." The payment of this consulting fee is
directly related to services performed by Mr. Garces in connection with the
Offering. 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 initial public offering
price net of the underwriting discount, exercisable for a five-year term
commencing on the date of this Prospectus. 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 $108,000. 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 date of this Prospectus. OrthAlliance will record compensation expense
related to this warrant. See Note 4 to Notes to Financial Statements of
OrthAlliance.
Certain of the Allied Orthodontists will receive warrants to purchase an
aggregate of 90,000 shares of Common Stock with an exercise price per share
equal to the initial public offering price, exercisable for a five-year term
commencing on the date of this Prospectus 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.
40
<PAGE> 42
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.
41
<PAGE> 43
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 this Offering, 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 OFFERING(2) AFTER OFFERING OWNED OWNED
- -------------------------- ------------ -------------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Dr. Robert N. Pickron(2).. 986,712 12.2% 9.2% 91,632 36.7%
Jonathan E. Wilfong(3).... 430,262 5.1 3.9 15,930 6.4
Dr. Randall K. Bennett(4). 310,250 3.8 2.9 24,000 9.6
Sam Westover(5)........... 198,070 2.4 1.8 33,000 13.2
Dr. Randall A. Schmidt(6). 232,849 2.9 2.2 3,051 1.2
Dr. Douglas D. Durbin(7).. 109,399 1.3 1.0 1,062 *
Robert S. Chilton(8)...... 10,000 * * -- --
U. Bertram Ellis, Jr...... -- -- -- -- --
Paul H. Hayase(9)......... 33,768 * * 6,000 2.4
P. Craig Hethcox(10)...... 70,000 * * -- --
Craig L. McKnight......... -- -- -- -- --
W. Dennis Summers......... -- -- -- -- --
All directors and
executive officers as a
group (11 persons)(11).. 1,394,598 16.2 12.4 83,043 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) 345,290 shares of Common Stock received by Dr. Pickron in connection with
the Transfers assumes an initial public offering price of $11.00 per share.
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) 268,250 shares of the Common Stock reflected assumes an initial public
offering price of $11.00 per share, with respect to Dr. Bennett's Class A
membership interest in POV LLC that is anticipated to be redeemed
immediately following the closing of the Offering and the Common Stock
received by Dr. Bennett in connection with the Transfers.
(5) 75,070 shares of the Common Stock reflected assumes an initial public
offering price of $11.00 per share, as a result of Mr. Westover's Class A
membership interest in POV LLC which is anticipated to be redeemed
immediately following the closing of the Offering. Also includes options
for the purchase of 60,000 shares of Common Stock pursuant to the Employee
Plan.
(6) 179,948 shares of Common Stock received by Dr. Schmidt in connection with
the Transfers assumes an initial public offering price of $11.00 per share.
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.
(7) 101,965 shares of Common Stock received by Dr. Durbin in connection with
the Transfers assumes an initial public offering price of $11.00 per share.
(8) Includes 10,000 options pursuant to the Employee Plan.
(9) 18,768 shares of Common Stock reflected assumes an initial public offering
price of $11.00 per share with respect to Mr. Hayase's Class A membership
interest in POV LLC that is anticipated to be redeemed immediately
following the closing of the Offering. Includes options for the purchase of
15,000 shares of Common Stock pursuant to the Employee Plan.
(10) Includes 70,000 shares of Common Stock subject to the exercise of a warrant
and options pursuant to the Employee Plan.
(11) Includes options and warrants for the purchase of 505,350 shares of the
Company's Common Stock and, as applicable, assumes an initial public
offering price of $11.00. See separate footnotes set forth above.
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<PAGE> 44
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 8,114,934 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 date of this Prospectus, 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
43
<PAGE> 45
Conversion 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 initial public
offering 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 price to public in the Offering, and each of the
subsequent Conversion Prices is equal to 120% of the preceding Conversion Price.
Therefore, assuming the price to public in the Offering is the mid-point of the
estimated initial public offering price range ($11.00), 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 $16.50, $19.80, $23.76,
$28.51 and $34.21, respectively. If any Conversion Prices are attained within
180 days after the date of this Prospectus, 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 this Prospectus. 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 597,237 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
initial public offering price, (ii) the initial public offering price net of
underwriting discount, (iii) the higher of the initial public offer 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
44
<PAGE> 46
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 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
45
<PAGE> 47
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 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 Offering, there has not been any 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.
46
<PAGE> 48
Upon completion of the Offering, the Company will have 10,714,934 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 Offering
will be freely 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 Founding Practices have contracted to receive 6,364,934 shares of
Common Stock (assuming an initial public offering price of $11.00) 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 (107,149 shares based on the number of shares to be
outstanding after the Offering) 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 agreed to enter into lock-up
agreements (the "Lock-up Agreements") generally providing that for a period of
365 days after the date of this Prospectus, 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 date of this
Prospectus, 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.
In addition to the restricted shares outstanding upon completion of the
Offering and the Transfers, all of the 95,000 shares of Common Stock which may
be acquired upon the exercise of vested stock options within 365 days following
the date of this Prospectus (collectively, the "Option Shares") are subject to
the Lock-up
47
<PAGE> 49
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 597,237 shares of Common
Stock that may be acquired upon the exercise of warrants 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 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 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 this Prospectus, 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."
In addition, the Company has filed a registration statement with respect to
2,500,000 shares of Common Stock under the Securities Act for use in connection
with future acquisitions. These shares generally 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 acquisitions will restrict the resale
of all or a portion of the shares issued in those transactions for varying
periods of time.
48
<PAGE> 50
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co., and Oppenheimer & Co., Inc. as representatives of the several Underwriters
(the "Representatives"), have agreed, severally, to purchase from the Company
the number of shares of Common Stock set forth below opposite their respective
names.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
J.C. Bradford & Co................................................................
Oppenheimer & Co., Inc............................................................
---------
Total................................................................... 2,600,000
========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all shares of Common Stock
offered hereby if any of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers, who may include the Underwriters, at the
public offering price less a selling concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other brokers or dealers. After
the Offering, the public offering price and such concessions may be changed by
the Representatives. The Representatives have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they exercise
discretionary authority.
The Offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of shares.
The Company has granted the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to an aggregate of
390,000 additional shares of Common Stock to cover over-allotments, if any. To
the extent the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
that the number of shares of Common Stock to be purchased by it shown in the
table above bears to the total number of shares in such table, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the 2,600,000 shares of
Common Stock offered hereby. If purchased, the Underwriters will sell these
additional shares on the same terms as those on which the 2,600,000 shares are
being offered.
Subject to applicable limitations, the Underwriters, in connection with the
Offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain, or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations, the Underwriters may also place
bids or make purchases on behalf of the underwriting syndicate to reduce a short
position created in connection with the Offering.
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<PAGE> 51
Upon the purchase by the Underwriters of the Common Stock being offered
hereby, the Company has agreed to sell to J.C. Bradford & Co. ("Bradford") for a
purchase price of $0.01 per underlying share of Common Stock, a warrant to
purchase up to 82,237 shares of Common Stock at an exercise price per share
equal to the higher of the initial public offering price or the closing bid
price of the first trading day. The warrant exercise price has been determined
by negotiation between the Company and Bradford as to be within the Conduct
Rules of the National Association of Securities Dealers, Inc. and various state
authorities. The warrant has a term of five years from the effective date of the
Offering, is non-transferrable, and is not exercisable until the earlier of a
subsequent public offering of the Common Stock or 24 months after the date of
this Prospectus. In any event, the shares underlying the warrant may not be
sold, assigned or hypothecated by Bradford or related parties for a period of
one year from the effective date of the Offering except to partners of Bradford.
The terms upon which the Company will be able to obtain additional equity
capital may be adversely affected since Bradford can be expected to exercise or
exchange them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in the warrant. Any profit realized by Bradford on the sale of the
underlying shares of Common Stock may be deemed additional underwriting
compensation. For a discussion of the registration rights associated with the
warrant, see "Description of Capital Stock -- Registration Rights."
In addition, the warrant for the purchase of 150,000 shares of Common Stock
issued to Jonathan Wilfong is deemed to be compensation received in connection
with or related to the distribution of the Offering. The exercise price per
share is equal to the initial public offering price. The warrant is exercisable
for a five-year term commencing on the date of this Prospectus. Mr. Wilfong has
contractually agreed not to sell or otherwise transfer the shares for a period
of one year from the date of this Prospectus. Pursuant to the terms of the stock
purchase warrant, Mr. Wilfong has certain registration rights for the underlying
shares of Common Stock. See "Description of Capital Stock -- Registration
Rights."
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons, if any, against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters or any such controlling persons may be required to make in
respect thereof.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market. Prior to this Offering, there has been no public market for the
Common Stock. The offering price will be determined through negotiation among
the Company and the Representatives. Among the factors to be considered in such
negotiations will be the expected results of operations of the Company, among
other things, the financial and operating history and trends of the Company, the
experience of its management, the position of the Company in its industry, and
the economy as a whole. Additionally, consideration will be given to the status
of the securities markets, market conditions for new offerings of securities and
the prices of similar securities of comparable companies. The Representatives
intend to act as market makers with regard to the Common Stock.
Pursuant to the Lock-up Agreements, all of the Company's officers,
directors, five percent or greater stockholders and the beneficial owners of the
Founding Practices have agreed with the Representatives that they will not,
except for the exercise of warrants and stock options pursuant to the Stock
Plans described in this Prospectus, 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 for a
period of 365 days following the date of this Prospectus, without the prior
written consent of the Representatives. Similarly, the Company has agreed
generally that, for a period of 365 days after the date of this Prospectus, 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 issue shares of Common Stock
in connection with acquisitions, grant stock options under its Stock Plans and
issue shares of Common Stock upon the exercise of options previously granted.
The Representatives may, at any time without notice, release all or any portion
of the securities subject to the Lock-up Agreements. After such 365-day period,
such persons will be entitled to sell, distribute or otherwise dispose of the
Common Stock or options to acquire Common Stock, subject to the provisions of
applicable securities laws. See "Shares Eligible for Future Sale."
50
<PAGE> 52
LEGAL MATTERS
The validity of the shares of Common Stock and Class B 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. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Bass, Berry & Sims PLC, Nashville, Tennessee.
EXPERTS
The financial statements of the Company, US Orthodontic Care, Inc. and
Premier Orthodontic Group, 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-1 (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. In
addition, the Company has made application for the Common Stock to be listed for
trading on the Nasdaq National Market. Upon listing, 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.
51
<PAGE> 53
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 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-5
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-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> 54
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 statement of
stockholder's equity 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> 55
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1997
DECEMBER 31, -----------
1996
------------ (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 5,665
Deficit accumulated during the development stage................. 0 (6,565)
-- -----------
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> 56
ORTHALLIANCE, INC.
(A DEVELOPMENT-STATE ENTERPRISE)
STATEMENT OF OPERATIONS
<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................................................ -- (6,565)
------------ -----------
NET LOSS.................................................... $ -- $ 6,565
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 57
ORTHALLIANCE, INC.
(A DEVELOPMENT-STATE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(OCTOBER 21, FOR THE SIX
1996) TO MONTHS
DECEMBER 31, ENDED JUNE
1996 30, 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.............................................................. $ -- $(6,565)
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....................... -- (5,665)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of warrants................................................ -- 5,665
------------ -----------
NET CHANGE IN CASH
CASH, beginning of period............................................. -- --
------------ -----------
CASH, end of period................................................... $ -- $ --
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 58
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDER'S DEFICIT
FOR THE PERIOD FROM INCEPTION (OCTOBER 21, 1996) TO JUNE 30, 1997
<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 5,665 0 5,665
Net loss.............................. 0 0 0 (6,565) (6,565)
-- --
-------- -------- -------------
STOCKHOLDER'S DEFICIT AT JUNE 30,
1997................................ $0 $0 $5,665 $ (6,565) $ (900)
======= ======== ======= =============== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 59
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 "Offering").
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 Offering. 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> 60
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 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. 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 recorded additional compensation expense of
$2,475,000 (unaudited) related to these warrants in the second quarter of 1997
based on the assumed initial public offering price 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 56 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 6,364,934 shares of Common Stock (based on an assumed
initial public offering price of $11.00 per share) and approximately $13,900,000
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> 61
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 (assuming 2,600,000 shares offered to the public at a price of
$11.00 per share):
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
Founding practice owners................................ 59.4% --%
USOC stockholders....................................... 11.4 70.0
Premier stockholders.................................... 4.9 30.0
The public stockholders................................. 24.3 --
------ ------
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> 62
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
82,237 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 Offering, 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
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("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 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 assumed initial public offering price
and the exercise price.
OrthAlliance has agreed to issue warrants for the purchase of 90,000 shares
of Common Stock to owners of certain of the Founding Practices. These warrants
are being issued for referring other orthodontists to the
F-10
<PAGE> 63
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company. The exercise price per share will be equal to the initial public
offering price. OrthAlliance recorded compensation expense of $990,000
(unaudited and based upon an assumed initial public offering price of $11.00)
related to these warrants in the second quarter of fiscal 1997 (the period of
grant) in accordance with SFAS No. 123.
Additionally, May 13, 1997 USOC granted a warrant to purchase 150,000
shares of common stock to a consultant at an exercise price equal to the initial
public offering price net of the underwriting discount. On June 10, 1997, the
warrant was cancelled and a warrant to purchase 150,000 shares of Common Stock
was issued at an exercise price equal to the initial public offering price net
of the underwriting discount. OrthAlliance will record compensation expense of
approximately $1,650,000 (unaudited) in the second quarter of fiscal 1997 for
the fair value of the warrant based on the assumed initial public offering price
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 recorded compensation expenses of $2,475,000
(unaudited) related to these warrants in the second quarter of 1997 (See Note 1
"The Merger" for further discussion).
As discussed in Note 3, the Company has granted a warrant for the purchase
of 82,237 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 Offering. 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:
F-11
<PAGE> 64
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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> 65
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
DECEMBER 31, SIX MONTHS ENDED
1996 JUNE 30, 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).............................. 15,365,000 7,816,000
Practices participating under (iii)............................. 3,664,000 2,005,000
---------------- ----------------
Totals for Founding Practices......................... $ 58,925,000 $ 30,528,000
============ ============
</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> 66
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED PATIENT RECEIVABLES, NET, OF THE FOUNDING PRACTICES
<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, 1996 --------------
----------------- (UNAUDITED)
<S> <C> <C>
Patient receivables, net of allowances of $251,000 and $184,000,
respectively.................................................. $ 4,765,000 $3,494,000
Unbilled patient receivables, net of allowances of $149,000 and
$136,000, respectively........................................ 2,810,000 2,579,000
----------------- --------------
Patient receivables, net of allowances................ $ 7,575,000 $6,073,000
============== ===========
</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) payment of all operating and nonoperating expenses, (ii)
the management fees, and (iii) salaries for the Allied Orthodontists and other
employees of the Allied Orthodontists.
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
assumed by OrthAlliance. In exchange for assuming these expenses and providing
management services, the Company will record revenue in amounts equal to those
assumed 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> 67
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......................................... $14,720,000 $ 7,903,000
Orthodontic supplies.................................... 5,465,000 2,624,000
Rent.................................................... 3,958,000 2,029,000
Advertising and marketing............................... 1,292,000 627,000
General and administrative expenses..................... 8,523,000 4,894,000
Depreciation and amortization on acquired assets........ 846,000 390,000
----------------- --------------
Total expenses................................ $34,804,000 $ 18,467,000
============== ===========
</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 noted above will not be assumed by
OrthAlliance.
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 and
150,000 shares of Common Stock to an officer of USOC and a consultant of USOC,
respectively, to replace previously issued warrants in USOC. The previously
issued warrants were cancelled by USOC. OrthAlliance recorded compensation
expense of $2,200,000 (unaudited) on these warrants in the second quarter of
1997. Additionally, in connection with the Merger, warrants to purchase 225,000
shares of Common Stock were assumed by OrthAlliance from USOC. OrthAlliance
recorded compensation expense of $2,475,000 (unaudited) in the second quarter of
1997 related to the warrants to purchase 225,000 shares of Common Stock.
F-15
<PAGE> 68
ORTHALLIANCE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to December 31, 1996, the Company adopted the 1997 Employee
Stock 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 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 Offering.
F-16
<PAGE> 69
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> 70
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.......................................................... 339,750 889,750
Deficit accumulated during the development stage.................. (3,131,862) (4,395,958)
------------ -----------
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> 71
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
FOR THE MONTHS MONTHS
PERIOD FROM ENDED ENDED
INCEPTION JUNE 30, JUNE 30,
(FEBRUARY 7, 1996 1997
1996) TO ----------- -----------
DECEMBER 31,
1996 (UNAUDITED) (UNAUDITED)
------------
<S> <C> <C> <C>
REVENUES................................................ $ 0 $ 0 $ 0
EXPENSES:
Salaries, wages, and benefits......................... (1,878,205) (1,304,828) (814,419)
General and administrative............................ (1,253,657) (99,241) (457,586)
------------ ----------- -----------
Total expenses................................ (3,131,862) (1,404,069) (1,272,005)
------------ ----------- -----------
OTHER INCOME (EXPENSE), NET............................. 0 0 7,909
------------ ----------- -----------
NET LOSS................................................ $ (3,131,862) $(1,404,069) $(1,264,096)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 72
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 0 550,000 550,000
Net loss.................... 0 0 0 (1,264,096) 0 (1,264,096)
--
--------- ---------- ----------- -------- -------------
BALANCE AT JUNE 30, 1997
(unaudited)................. 2,471,714 $0 $3,122,250 $(4,395,958) $889,750 $ (393,958)
======== ====== ========= ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 73
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION FOR THE SIX FOR THE SIX
(FEBRUARY 7, MONTHS ENDED MONTHS ENDED
1996) TO JUNE 30, JUNE 30,
DECEMBER 31, 1996 1996 1997
------------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $ (3,131,862) $ (1,404,069) $ (1,264,096)
------------------ ------------ --------------
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 1,080,000 550,000
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 (132,824)
------------------ ------------ --------------
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> 74
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"). 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 "Offering"), it
has entered into agreements to acquire, simultaneously with and as a condition
to the consummation of the Offering, 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> 75
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, "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> 76
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 on equity transactions of the
Company at that time) 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.
Additionally, on June 10, 1996, the Company granted a warrant to purchase
150,000 shares of the Company's common stock to a consultant at an exercise
price equal to the initial public offering price. On May 13, 1997, such warrant
was cancelled and a warrant to purchase 150,000 shares of OrthAlliance Common
F-24
<PAGE> 77
US ORTHODONTIC CARE, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock was issued at an exercise price equal to the initial public offering
price. OrthAlliance recorded compensation expense of approximately $4,125,000
(unaudited) in the second quarter of fiscal 1997 for the fair value of these
warrants based on the assumed initial public offering price of $11.00.
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 a fair market value
of $5.00) related to such option of $250,000 in the first quarter of fiscal
1997. On June 10, 1997, the options were 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 $300,000 for the difference between the assumed initial public
offering price and the fair market value established at the original issuance of
the option.
F-25
<PAGE> 78
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> 79
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1997
DECEMBER 31, ---------
1996
------------ (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> 80
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION FOR THE SIX
(NOVEMBER MONTHS
26, 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> 81
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> 82
PREMIER ORTHODONTIC GROUP, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
PERIOD FROM MONTHS ENDED
INCEPTION JUNE 30,
(NOVEMBER 26, 1997
1996) TO ------------
DECEMBER 31,
1996 (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> 83
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 "Offering"), it has entered into agreements
to acquire, simultaneous with and as a condition to the consummation of the
Offering, 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> 84
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, "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> 85
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 Offering.
F-33
<PAGE> 86
ORTHALLIANCE, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Simultaneously with and as a condition to the closing of the proposed
public offering (the "Offering"), 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"). The number of shares of Common Stock
issued in the Transfers will depend on the Offering price of the Common Stock.
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 become activated in connection with the Offering. 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 Offering, 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> 87
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 OFFERING 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 $ 2,886 $ (2,886)(2) $ 584 $ 6,792(4) $ 7,376
Patient receivables, net...... -- -- -- 3,494 -- 3,494 -- 3,494
Unbilled patient receivables,
net......................... -- -- -- 2,579 -- 2,579 -- 2,579
Deferred issuance costs....... -- -- 210 -- -- 210 (210)(4) --
Deferred income taxes......... -- -- -- -- 1,619(3) 1,619 -- 1,619
Other current assets.......... -- -- 1 1,567 (1,567)(2) 1 -- 1
------ ------ ------- -------- ----------- -------- ----------- -----------
Total current assets.... -- 564 231 10,526 (2,834) 8,487 6,582 15,069
Equipment and improvements,
net......................... -- 20 29 4,683 (2,608)(2) 2,124 -- 2,124
Other assets.................. -- 15 -- 1,055 (952)(2) 118 -- 118
------ ------ ------- -------- ----------- -------- ----------- -----------
Total assets............ $ -- $ 599 $ 260 $16,264 $ (6,394) $10,729 $ 6,582 $17,311
========== ===== ====== ======== ========== ======== ========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Amounts drawn in excess of
cash........................ $ -- $ -- $ -- $ 200 $ (200)(2) $ -- $ -- $ --
Accounts payable and other
current liabilities......... 900 334 644 615 (502)(2) 1,991 (900)(4) 881
(210)(4)
Patient prepayments........... -- -- -- 2,010 -- 2,010 -- 2,010
Payable to Founding
Practices................... -- -- -- -- 13,878(2) 13,878 (13,878)(4) --
Deferred income taxes......... -- -- -- -- 215(3) 215 -- 215
Current portion of long-term
debt........................ -- -- -- 974 (974)(2) -- -- --
------ ------ ------- -------- ----------- -------- ----------- -----------
Total current
liabilities........... 900 644 3,799 12,417 18,094 (14,988) 3,106
Long-term debt, less current
portion..................... -- 1,010 -- 3,401 (1,083)(2) 3,328 (3,328)(4) --
------ ------ ------- -------- ----------- -------- ----------- -----------
Total liabilities....... 900 1,344 644 7,200 11,334 21,422 (18,316) 3,106
------ ------ ------- -------- ----------- -------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
OrthAlliance, Inc.:
Class A Common Stock
$.001 par value,
70,000,000 shares
authorized, one share
issued and outstanding
and 10,714,934(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................... -- -- -- -- 3,810(2) 4,077 24,895(4) 28,052
(8)(2) (920)(4)
1,404(3)
3,122(1)
(4,396)(1)
(745)(1)
890(1)
Warrants.................... 5,665 -- -- -- -- 5,665 920(4) 6,585
Accumulated deficit......... (6,565) -- -- -- (13,878)(2) (20,443) -- (20,443)
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...................... -- -- 890 -- (890)(1) -- -- --
Accumulated deficit........... -- -- (4,396) -- 4,396(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........................ -- -- -- 9,064 (9,064)(2) -- -- --
------ ------ ------- -------- ----------- -------- ----------- -----------
Total stockholders
equity/deficit........ (900) (745) 384 9,064 (17,728) (10,693) 24,898 14,205
------ ------ ------- -------- ----------- -------- ----------- -----------
Total liabilities and
stockholders'
equity/deficit........ $ -- $ 599 $ 260 $16,264 $ (6,394) $10,729 $ 6,582 $17,311
========== ===== ====== ======== ========== ======== ========== ==========
</TABLE>
(a) Includes 6,364,934 shares issued in the Transfers, 1,750,000 shares issued
in the Merger and 2,600,000 shares issued in the Offering.
See accompanying notes to unaudited pro forma combined balance sheet.
F-35
<PAGE> 88
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. 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 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 recorded additional compensation expense of
$2,475,000 (unaudited) related to these warrants in the second quarter
of 1997 based on the assumed initial public offering price of $11.00.
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 372,237 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 the assumed initial public
offering price of $11.00 and will record the fair value of the
remaining 82,237 as an adjustment to additional paid-in-capital upon
completion of the Offering.
(2) Reflects the issuance of 6,364,934 shares of Common Stock of the
Company and cash of $13,878,000 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,
based on an assumed Offering price of $11.00 per share. The Founding
Practices will receive up to twenty percent of their practice asset
F-36
<PAGE> 89
ORTHALLIANCE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
values in cash and the remainder in Common Stock. The 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 $184............... $ 3,494
Unbilled patient receivables, net of allowances of $136............. 2,579
Other assets........................................................ 103
Equipment and improvements, net..................................... 2,075
Accounts payable and accrued liabilities............................ (113)
Patient prepayments................................................. (2,010)
Long-term debt...................................................... (2,318)
-------
Total..................................................... $ 3,810
======
</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. The
Company incurred costs of approximately $4,000,000 from inception
through December 31, 1996 and approximately $600,000 in the first
quarter of 1997 related to issuance costs. These costs were expensed.
The Company will defer future issuance costs beginning with the second
quarter of 1997.
(4) The summary of the Post Offering Adjustments are as follows:
<TABLE>
<S> <C>
Gross proceeds of the Offering..................................... $28,600
Underwriting discount.............................................. (2,002)
Estimated expenses................................................. (1,700)
Payment of dividend to Founding Practices.......................... (13,878)
Payment of long term debt assumed in the Merger and Transfers...... (3,328)
Payment of consulting fees......................................... (900)
-------
Net cash received in Offering............................ $ 6,792
=======
</TABLE>
Deferred issuance costs of $210 are assumed to be paid with the proceeds of
the Offering as a component of the estimated expenses of $1,700.
F-37
<PAGE> 90
======================================================
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 OR ANY UNDERWRITER. 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
Use of Proceeds....................... 15
Dividend Policy....................... 15
Dilution.............................. 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 22
Management............................ 31
Certain Transactions.................. 36
Principal Stockholders................ 42
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 46
Underwriting.......................... 49
Legal Matters......................... 51
Experts............................... 51
Additional Information................ 51
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1997 (FOR 25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
2,600,000 SHARES
[ORTHALLIANCE LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
J.C.BRADFORD & CO.
, 1997
======================================================
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses of this Offering to be incurred
by the Company in connection with this registration statement, other than
underwriting discounts and commissions. All the amounts shown are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market Application and Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................................. $ 8,667
Nasdaq National Market Application and Listing Fee............................... 47,917
NASD Filing Fee.................................................................. 4,000
Blue Sky Fees and Expenses....................................................... 10,000
Accounting Fees and Expenses..................................................... 600,000
Legal Fees and Expenses.......................................................... 500,000
Printing and Engraving Costs..................................................... 270,000
Transfer Agent Fees and Expenses................................................. 5,000
Miscellaneous.................................................................... 254,416
----------
Total.................................................................. $1,700,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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.
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 for expenses 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 Underwriting Agreement will provide for the indemnification by the
Underwriters of the Company, each of the Company's directors, each of the
Company's officers who signs this Registration Statement and each person who
controls the Company within the meaning of the Securities Act, solely with
respect to information provided by the Underwriters for inclusion in this
Registration Statement.
II-1
<PAGE> 92
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 Offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
(i) In October, 1996, the Company issued one share of Common Stock to
Sam Westover for $.01 per share;
(ii) Effective prior to the completion of the Offering, Premier
Orthodontic Group, Inc. ("Premier") and US Orthodontic Care, Inc. ("USOC")
will merge with and into the Company. As a result of the merger, holders of
Premier common stock will receive 525,000 shares of Common Stock and 75,000
shares of Class B Common Stock and holders of USOC Common Stock will
receive 1,225,000 shares of Common Stock and 175,000 shares of Class B
Common Stock;
(iii) Simultaneously with the completion of this Offering, the Company
will issue 6,552,759 shares of its Common Stock in connection with the
acquisition of the practice management or consulting rights to and certain
assets of the Founding Practices.
Each of these transactions was completed without registration of the
relevant security under the Securities Act in reliance upon the exemptions
provided by Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder on the basis that such transactions did not involve a
public offering, the purchasers were sophisticated with access to the kind of
information registration would provide and that such purchasers acquired such
securities without a view toward the distribution thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
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 stockholders of
Founding Practices.
3.1 -- Amended and Restated Certificate of Incorporation of OrthAlliance.
3.2 -- Amended and Restated Bylaws of OrthAlliance.
4.1 -- Form of certificate evidencing ownership of Common Stock of OrthAlliance.
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).
</TABLE>
II-2
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
10.6 * -- 1997 Non-Employee Director Stock Plan.
10.7 -- 1997 Employee Stock Plan.
10.8 -- Employment Agreement between OrthAlliance and Sam Westover.
10.9 -- Consulting Agreement between OrthAlliance and Jonathan Wilfong.
10.10 -- Form of Employment Agreement between Allied Orthodontist and Founding Practice.
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
27.1 -- Financial Data Schedule (for SEC use only).
99.1 -- Consent of Drs. Durbin and Schmidt, Mr. Summers, Mr. McKnight and Mr. Ellis to
serve as directors.
</TABLE>
- ---------------
+ Previously filed.
* To be filed by amendment.
(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 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Representatives to
permit prompt delivery to each purchaser.
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-3
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Pre-Effective Amendment No. 4 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on August 11, 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. 4 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ------------------------------ ----------------
<C> <S> <C>
/s/ SAM WESTOVER Chief Executive Officer, August 11, 1997
- --------------------------------------------- President and Director
Sam Westover (principal executive
officer)
/s/ ROBERT S. CHILTON Chief Financial Officer August 11, 1997
- --------------------------------------------- (principal financial and
Robert S. Chilton accounting officer)
/s/ JONATHAN E. WILFONG* Director August 11, 1997
- ---------------------------------------------
Jonathan E. Wilfong
/s/ RANDALL K. BENNETT, D.D.S.* Director August 11, 1997
- ---------------------------------------------
Randall K. Bennett, D.D.S.
* Signed by Sam Westover pursuant to power of attorney previously filed.
</TABLE>
II-4
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------ ----
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement................................................
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
stockholders of Founding Practices. ..........................................
3.1 -- Amended and Restated Certificate of Incorporation of OrthAlliance. ...........
3.2 -- Amended and Restated Bylaws of OrthAlliance. .................................
4.1 -- Form of certificate evidencing ownership of Common Stock of OrthAlliance. ....
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 -- 1997 Employee Stock Plan. ....................................................
10.8 -- Employment Agreement between the OrthAlliance and Sam Westover. ..............
10.9 -- Consulting Agreement between OrthAlliance and Jonathan Wilfong. ..............
10.10 -- Form of Employment Agreement between Allied Orthodontist and Founding
Practice. ....................................................................
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.............................................................
27.1 -- Financial Data Schedule (for SEC use only)....................................
99.1 -- Consent of Drs. Durbin and Schmidt, Mr. Summers, Mr. McKnight and Mr. Ellis to
serve as directors. ..........................................................
</TABLE>
- ---------------
+ Previously filed.
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
ORTHALLIANCE, INC.
___________ SHARES CLASS A COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
July __, 1997
J.C. BRADFORD & CO., L.L.C.
OPPENHEIMER & CO., INC.
As Representative of the Several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
OrthAlliance, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to the underwriters named in Schedule I hereto (the
"Underwriters") for whom you are acting as the representatives (the
"Representatives") ___________ shares (collectively, the "Firm Shares"), of
Class A Common Stock, $.001 par value per share (the "Common Stock"), of the
Company. Such shares of Common Stock are to be sold to the Underwriters,
acting severally and not jointly, in such amounts as are set forth in Schedule
I hereto opposite the name of such Underwriter. The Company proposes to grant
to the Underwriters an option to purchase up to _______ additional shares of
Common Stock as provided for in Section 2 of this Agreement for the purpose of
covering over-allotments (the "Option Shares"). The Firm Shares and the Option
Shares purchased pursuant to this Agreement are herein called the "Shares."
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of
1933, as amended (the "Securities Act"), a registration statement on
Form S-1 (Registration No. 333-27143), including the related
preliminary prospectus relating to the Shares. Copies of such
registration statement and any amendments, including any
post-effective amendments, and all forms of the related prospectuses
contained therein and any supplements thereto, have been delivered to
you. Such registration statement, including the prospectus, Part II,
all
<PAGE> 2
financial schedules and exhibits thereto, all information deemed to be
a part of such registration statement pursuant to Rule 430A under the
Securities Act and any related registration statement filed pursuant
to Rule 462(b) under the Securities Act, at the time when they shall
become effective, are herein referred to as the "Registration
Statement," and the prospectus included as part of the Registration
Statement on file with the Commission that discloses all the
information that was omitted from the prospectus on the effective date
pursuant to Rule 430A of the Rules and Regulations (as defined below)
and in the form filed pursuant to Rule 424(b) under the Securities Act
is herein referred to as the "Final Prospectus." The prospectus
included as part of the Registration Statement on the date when the
Registration Statement became effective is referred to herein as the
"Effective Prospectus." Any prospectus included in the Registration
Statement and in any amendment thereto prior to the effective date of
the Registration Statement is referred to herein as a "Preliminary
Prospectus." For purposes of this Agreement, "Rules and Regulations"
mean the rules and regulations promulgated by the Commission under
either the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations, and
did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; except that the foregoing does
not apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the
only information so provided is the information included in the last
paragraph on the cover page and in the first and third paragraphs
under the caption "Underwriting" in the Preliminary, Effective and
Final Prospectus). When the Registration Statement becomes effective
and at all times subsequent thereto up to and including the First
Closing Date (as hereinafter defined), (i) the Registration Statement,
the Effective Prospectus and Final Prospectus and any amendments or
supplements thereto will contain all statements which are required to
be stated therein in accordance with the Securities Act and the Rules
and Regulations and will comply with the requirements of the
Securities Act and the Rules and Regulations, and (ii) neither the
Registration Statement, the Effective Prospectus nor the Final
Prospectus nor any amendment or supplement thereto will include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not
misleading; except that the foregoing does not apply to statements or
omissions made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically
for use therein (it being understood that the only information so
provided is the information included in the last paragraph on the
cover page and in the first and third paragraphs under the caption
"Underwriting" in the Final Prospectus).
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<PAGE> 3
(c) The Company, each subsidiary of the Company (as used
herein, the term "subsidiary" includes any corporation, joint venture
or partnership in which the Company or any subsidiary of the Company
has a direct or indirect ownership interest) and each Founding
Practice (as defined herein and as listed on Schedule II hereto) is
duly organized and validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization with
full power and authority to own its properties and conduct its
business as now conducted and is duly qualified or authorized to do
business and is in good standing in all jurisdictions wherein the
nature of its business or the character of property owned or leased
may require it to be authorized or qualified to do business. The
Company, each subsidiary and each Founding Practice holds all
licenses, consents and approvals, and has satisfied all eligibility
and other similar requirements imposed by federal, state and local
regulatory bodies, administrative agencies or other governmental
bodies, agencies or officials, in each case as required for the
conduct of the business in which it is engaged and is contemplated to
be engaged as set forth in the Effective Prospectus and the Final
Prospectus.
(d) The capitalization of the Company as of March 31,
1997 is as set forth under the caption "Capitalization" in the
Effective Prospectus and the Final Prospectus, and the Company's
capital stock conforms to the description thereof contained under the
caption "Description of Capital Stock" in the Effective Prospectus and
the Final Prospectus. All the issued shares of capital stock of the
Company, including Common Stock and Class B Common Stock, par value
$.001 per share ("Class B Common Stock"), have been duly authorized
and validly issued, are fully paid and nonassessable. None of the
issued shares of capital stock of the Company have been issued in
violation of any preemptive or similar rights. The Shares to be sold
by the Company hereunder have been duly and validly authorized and,
upon issuance and delivery and payment therefor in the manner herein
described, will be validly issued, fully paid and nonassessable.
Except as set forth in the Effective Prospectus and the Final
Prospectus, (i) the Company does not have outstanding any options to
purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of capital stock and (ii)
there are no preemptive rights or other rights to subscribe for or to
purchase, or any restriction upon the transfer of, any shares of
capital stock pursuant to the Company's certificate of incorporation,
bylaws or any agreement or other instrument to which the Company is a
party or by which it may be bound. Neither the filing of the
Registration Statement nor the offer or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock or any other securities of
the Company. The Underwriters will receive good and marketable title
to the Shares to be issued and delivered hereunder, free and clear of
all liens, encumbrances, claims, security interests, restrictions,
shareholders' agreements and voting trusts whatsoever.
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<PAGE> 4
(e) The form of stock certificate to be used to evidence
the Common Stock and the Class B Common Stock will be in due and
proper form and will comply with all applicable legal requirements.
(f) All offers and sales by the Company of the Company's
securities prior to the date hereof, including the offer and sale of
the shares of a Common Stock in connection with the Acquisitions and
(b) Common Stock and Class B Common Stock in connection with the
Merger (as defined in the Effective Prospectus) were at all relevant
times duly registered or the subject of an available exemption from
the registration requirements of the Securities Act, and were duly
registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue
Sky laws, and any private placement memoranda delivered in connection
with offers and sales of the Company's Securities prior to the date
hereof did not include any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein not misleading.
(g) At the Closing Date, each of the agreements to which
the Company or its predecessor corporations, US Orthodontic Care, Inc.
and Premier Orthodontic Group, Inc. (collectively, the "Predecessor
Corporations"), are parties in connection with the acquisition of
certain assets or capital stock of 58 separate orthodontic practices
(collectively, the "Founding Practices") or to which the Founding
Practices are parties, including Management Agreements, Purchase and
Sale Agreements, Agreements and Plans of Reorganization, Purchase and
Sale of Stock Agreements, and Employment Agreements with Allied
Orthodontists and the Agreement and Plan of Merger between the Company
and the Predecessor Corporations (each as such may be defined in the
Effective Prospectus), and the employment agreements with each of
Messrs. Westover, Hethcox, Chilton and Hayase (collectively, the
"Employment Agreements") will have been duly and validly authorized,
executed and delivered by the Company and each of the other parties
thereto and will be valid and binding agreements of the Company and
each of the other parties thereto enforceable in accordance with their
respective terms. Each of the Company, the Predecessor Corporations
and the Founding Practices has the power and authority to enter into
the Operative Documents (as defined below). At the Closing Date, the
agreements pursuant to which certain persons have agreed not to sell
their Common Stock for a specified period of time (the "Lockup
Agreements") will have been duly and validly authorized, executed and
delivered by the parties thereto and will be valid and binding
agreements, enforceable in accordance with their terms. The
Management Agreements, Purchase and Sale Agreements, Agreements and
Plans of Reorganization, Purchase and Sale of Stock Agreements,
Employment Agreements with Allied Orthodontists, the Agreement and
Plan of Merger between the Company and the Predecessor Corporations,
the Employment Agreements and the Lockup Agreements are sometimes
hereinafter called the "Operative Documents." The execution, delivery
and performance of the Operative Documents and the consummation of the
transactions contemplated therein and compliance by the Company and
the Founding Practices with their respective obligations thereunder
have been duly authorized by all necessary action and will not
contravene any provision of applicable law or the certificate of
incorporation or by-laws or other organizational instrument (as
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<PAGE> 5
applicable) of the Company or any Founding Practice or any agreement
or other instrument binding upon any of them, or any judgment, order
or decree of any governmental body, agency or court having
jurisdiction over them, and no consent, approval, authorization or
order of or qualification with any governmental body or agency is
required for the performance by any of them of their obligations under
the Operative Documents, except such as may be required by the federal
securities laws or the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(h) The Company has full legal right, power and authority
to enter into this Agreement and to sell and deliver the Shares to be
sold by it to the several Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms. No
consent, approval, authorization or order of any court or governmental
agency or body or third party is required for the performance of this
Agreement by the Company, any subsidiary or any of the Founding
Practices or the consummation by the Company, any subsidiary or any of
the Founding Practices of the transactions contemplated hereby, except
such as have been obtained and such as may be required by the National
Association of Securities Dealers, Inc. ("NASD") or under the
Securities Act or state securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the several
Underwriters. The issue and sale of the Shares by the Company, the
Company's performance of this Agreement and the consummation of the
transactions contemplated hereby and by the Operative Documents will
not result in a breach or violation of, or conflict with, any of the
terms and provisions of, or constitute a default by the Company, any
subsidiary or any of the Founding Practices under, any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which the Company, any subsidiary or any of the Founding
Practices is a party or to which the Company, any subsidiary or any
of the Founding Practices or any of their respective properties is
subject, the certificate of incorporation, bylaws or other governing
instruments of the Company, any subsidiary or any of the Founding
Practices or any statute or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to
the Company, any subsidiary or any of the Founding Practices or any of
their respective properties. Neither the Company, any subsidiary, nor
any of the Founding Practices is in violation of its certificate of
incorporation, bylaws or other governing instruments or any law,
administrative rule or regulation or arbitrators' or administrative or
court decree, judgment or order or in violation or default (there
being no existing state of facts which with notice or lapse of time or
both would constitute a default) in the performance or observance of
any material obligation, agreement, covenant or condition contained in
any contract, indenture, deed of trust, mortgage, loan agreement,
note, lease, agreement or other instrument or permit to which it is a
party or by which it or any of its properties is or may be bound.
(i) The historical and pro forma financial statements,
together with the related schedules and notes, of the Company and the
Founding Practices (together, the
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<PAGE> 6
"Combined Companies"), included in the Registration Statement, the
Effective Prospectus and the Final Prospectus, conform to the
requirements of the Securities Act and the Rules and Regulations.
Such historical financial statements fairly present the financial
position of the Combined Companies at the respective dates indicated
in accordance with generally accepted accounting principles applied on
a consistent basis for the periods indicated. Such pro forma
financial statements have been prepared on a basis consistent with
such historical statements, except for the pro forma adjustments
specified therein, and give effect to assumptions made on a reasonable
basis and present fairly the transactions reflected thereby as
indicated in the Prospectus. The financial and statistical data set
forth in the Effective Prospectus and the Final Prospectus fairly
present the information set forth therein on the basis stated in the
Effective Prospectus and the Final Prospectus. Arthur Andersen LLP,
whose reports are included in the Effective Prospectus and the Final
Prospectus, are independent accountants as required by the Securities
Act and the Rules and Regulations.
(j) Subsequent to March 31, 1997, none of the Company,
any subsidiary or any Founding Practice has sustained any material
loss or interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, which is not disclosed in the Effective Prospectus
and the Final Prospectus; and subsequent to the respective dates as of
which information is given in the Registration Statement, the
Effective Prospectus and the Final Prospectus, (i) neither the
Company, any subsidiary, nor any Founding Practice has incurred any
material liabilities or obligations, direct or contingent, or entered
into any transactions not in the ordinary course of business, and (ii)
there has not been any issuance of options, warrants or rights to
purchase interests or the capital stock of the Company, or any adverse
change, or any development involving a prospective adverse change, in
the general affairs, management, business, prospects, financial
position, net worth or results of operations of the Company or any
Founding Practice, except in each case as described in the Effective
Prospectus and the Final Prospectus.
(k) Except as described in the Effective Prospectus and
the Final Prospectus, there is not pending, or to the knowledge of the
Company threatened, any legal or governmental action, suit,
proceeding, inquiry or investigation, to which the Company, any of its
subsidiaries, any Founding Practice or any of their respective
officers or directors is a party, or to which their respective
property is subject, before or brought by any court or governmental
agency or body, wherein an unfavorable decision, ruling or finding
could prevent or materially hinder the consummation of this Agreement
or the Operative Documents or result in a material adverse change in
the business condition (financial or other), prospects, financial
position, net worth or results of operations of the Company, any of
its subsidiaries or any Founding Practice.
(l) __________ shares of Common Stock, including the
Shares, have been approved for listing on the Nasdaq Stock Market's
National Market ("Nasdaq"), subject to official notice of issuance.
The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act to register the Common Stock.
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<PAGE> 7
(m) Neither the Company nor any of its directors,
officers or controlling persons, has taken or will take, directly or
indirectly, any action resulting in a violation of Regulation M under
the Exchange Act, or designed to cause or result under the Exchange
Act or otherwise in, or which has constituted or which reasonably
might be expected to constitute, the stabilization or manipulation of
the price of any securities of the Company or facilitation of the sale
or resale of the Shares.
(n) There are no contracts or other documents required by
the Securities Act or by the Rules and Regulations to be described in
the Registration Statement, the Effective Prospectus or the Final
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required. All such
contracts to which the Company or any of its subsidiaries is a party
have been duly authorized, executed and delivered by the Company or
such subsidiary, constitute valid and binding agreements of the
Company or such subsidiary and are enforceable against the Company or
such subsidiary in accordance with the terms thereof. The Company or
such subsidiary has performed all obligations required to be performed
by it, and is neither in default nor has it received notice of any
default or dispute under, any such contract or other material
instrument to which it is a party or by which its property is bound or
affected. To the best knowledge of the Company, no other party under
any such contract or other material instrument to which it or any of
its subsidiaries is a party is in default in any material respect
thereunder.
(o) Except as described in the Effective Prospectus and
the Final Prospectus or such are not material to the business,
prospectus, properties, operations, conditions (financial or
otherwise) or results of operations of the Company, any subsidiary or
a Founding Practice, the Company, each of its subsidiaries and each
Founding Practice has good and marketable title to all real and
material personal property owned by it, free and clear of all liens,
charges, encumbrances or defects, except those reflected in the
financial statements hereinabove described. The real and personal
property and buildings referred to in the Effective Prospectus and the
Final Prospectus which are leased from others by the Company, its
subsidiaries or any Founding Practice are held under valid, subsisting
enforceable leases. The Company, its subsidiaries or any Founding
Practice owns or leases all such properties as are necessary to their
respective operations as now conducted.
(p) The Company's system of internal accounting controls
is sufficient to meet the broad objectives of internal accounting
controls insofar as those objectives pertain to the prevention or
detection of errors or irregularities in amounts that would be
material in relation to the Company's financial statements.
(q) The Company, each of its subsidiaries and each
Founding Practice has filed all foreign, federal, state and local
income and franchise tax returns required to be filed through the date
hereof and has paid all taxes shown as due therefrom to the extent
such taxes have become due and are not being contested in good faith;
and there is no tax deficiency that has been, nor does the Company
have knowledge of any tax deficiency which is likely to be, asserted
against the Company, any of its
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<PAGE> 8
subsidiaries or any Founding Practice, which if determined adversely
could materially and adversely affect the earnings, assets, affairs,
business prospects or condition (financial or other) of the Company,
any of its subsidiaries or any Founding Practice.
(r) The Company, each of its subsidiaries, and each
Founding Practice operates its business in conformity with all
applicable statutes, common laws, ordinances, decrees, orders, rules
and regulations of governmental bodies including, without limitation,
those relating to the practice of orthodontics, the ownership of the
assets of an orthodontic practice, the employment of orthodontists or
other personnel, the content of advertising, the making of payments in
consideration for referrals of patients, limitations on tasks that may
be delegated by an orthodontist to other staff members, the business
of insurance and reimbursement by governmental agencies. The Company
is not aware of any existing or imminent matter which may materially
adversely impact its, any of its subsidiaries' or any of the Founding
Practices' operations or business prospects other than as specifically
disclosed in the Effective Prospectus and the Final Prospectus. Each
of the (i) orthodontists and (ii) other professionals involved in
providing orthodontic care to patients (each, an "Orthodontic
Professional") who is employed by or affiliated with a Founding
Practice has such permits under laws and related governmental
regulations (including, as applicable, state and local licenses to
practice orthodontics and federal Drug Enforcement Agency Controlled
Substances Registration Certificates) as are necessary to provide
orthodontic care in such jurisdictions as are contemplated by the
Service Agreement or Consulting Agreement (as defined in the
Registration Statement) to be entered into between the Founding
Practice and the Company on or prior to the Closing Date; each of such
Orthodontic Professionals has fulfilled and performed all of his or
her material obligations with respect to such permits, and no event
has occurred which allows, or after notice or lapse of time (or both)
would allow, revocation or termination thereof or would result in any
other material impairment of the rights of the holder of such permit;
and, except as described in the Effective Prospectus, no such permit
contains any restrictions that are materially burdensome to the holder
thereof or the Founding Practice with which that holder is affiliated
or employed. The Company's and the Founding Practice's business
practices do not violate any foreign, federal or state laws regarding
orthodontist ownership of (or financial relationship with), and
referral to, entities providing orthodontics-related goods or
services, or laws respecting financial interests held by orthodontists
in entities to which they may refer patients for the provision of
orthodontics-related goods or services. None of the Founding
Practices (or any of their respective predecessors) has billed or
accepted payment from any Medicare, Medicaid or CHAMPUS program during
the two years preceding the date of this Agreement.
(s) Neither the Company, any of its subsidiaries, nor any
of the Founding Practices is in violation of any federal, state, local
or foreign law or regulation relating to occupational safety and
health or to the storage, handling or transportation of hazardous or
toxic materials, and the Company, each of its subsidiaries and each
Founding Practice has received all permits, licenses or other
approvals required of it under applicable federal, state and foreign
occupational safety and health and
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<PAGE> 9
environmental laws and regulations to conduct its respective
businesses, and the Company, each of its subsidiaries and each
Founding Practice is in compliance with all terms and conditions of
any such permit, license or approval, except any such violation of law
or regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not result in a material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or prospects of the Company or any of its
subsidiaries.
(t) None of the Company, any of its subsidiaries, nor any
Founding Practice has failed to file with the applicable regulatory
authorities any statements, reports, information or forms required by
all applicable laws, regulations or orders, the failure of which would
result in a material adverse effect upon the Company and its
subsidiaries taken as a whole, or the Founding Practice; all such
filings or submissions were in material compliance with applicable
laws when filed, and no material deficiencies have been asserted by
any regulatory commission, agency or authority with respect to such
filings or submissions. None of the Company, any of its
subsidiaries, nor any Founding Practice has failed to maintain in full
force and effect any licenses, registrations or permits necessary or
proper for the conduct of its business, or received any notification
that any revocation or limitation thereof is threatened or pending,
and there is not to the knowledge of the Company pending any change
under any law, regulation, license or permit which could materially
adversely affect the business, operations, property or business
prospects of the Company. Neither the Company, any of its
subsidiaries, nor any Founding Practice has received any notice of
violation of or been threatened with a charge of violating or is under
investigation with respect to a possible violation of any provision of
any law, regulation or order.
(u) No labor dispute exists or is imminent with any of
the employees of the Company, any of its subsidiaries, nor any
Founding Practice or otherwise which could materially adversely affect
the Company or any of its subsidiaries. The Company is not aware of
any existing or imminent labor disturbance by employees of the
Company, any of its subsidiaries or any Founding Practice which could
be expected to materially adversely affect the condition (financial or
otherwise), results of operations, properties, affairs, management,
business affairs or business prospects of the Company or its
subsidiaries.
(v) The Company, each of its subsidiaries and each
Founding Practice owns all licenses, copyrights, trademarks, service
marks and trade names presently employed by it in connection with the
businesses proposed to be operated by it, and none of the Company, any
of its subsidiaries nor any of the Founding Practices has received any
notice of infringement of or conflict with asserted rights of others
with respect to any of the foregoing which, alone or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, could
result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects
of the Company or any of its subsidiaries.
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<PAGE> 10
(w) The Company, each of its subsidiaries and each
Founding Practice is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which it is engaged and
in which it proposes to engage; and none of the Company, any of its
subsidiaries, nor any Founding Practice has any reason to believe that
it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a comparable
cost.
(x) Neither the Company, any of its subsidiaries, any
Founding Practice, nor to the knowledge of the Company, any director,
officer, agent, employee or other person acting on behalf of the
Company or any of its subsidiaries has (i) used, or authorized the use
of, any corporate or other funds for unlawful payments, contributions,
gifts or entertainment, (ii) made unlawful expenditures relating to
political activity to government officials or others, or (iii)
established or maintained any unlawful or unrecorded funds in
violation of any federal, state, local or foreign law or regulation,
including Section 30A of the Exchange Act. Neither the Company nor,
to the knowledge of the Company, any director, officer, agent,
employee or other person acting on behalf of the Company or any of its
subsidiaries has accepted or received any unlawful contributions,
payments, gifts or expenditures.
(y) The Company is not, will not become as a result of
the transactions contemplated hereby, and does not intend to conduct
its business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
(z) Except as disclosed in the Registration Statement and
the Effective Prospectus, there are no business relationships or
related party transactions required to be disclosed therein by Item
404 of Regulation S-K of the Commission.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to the several
Underwriters the Firm Shares, and each of the Underwriters, severally
and not jointly, agrees to purchase at a purchase price of $______ per
share, the number of Firm Shares set forth opposite such Underwriter's
name in Schedule I hereto.
(b) The Company hereby grants to the Underwriters an
option to purchase, solely for the purpose of covering over-allotments
in the sale of Firm Shares, all or any portion of the Option Shares at
the purchase price per share set forth above. The option granted
hereby may be exercised as to all or any part of the Option Shares at
any time within 30 days after the date of the Final Prospectus. The
Underwriters shall not be under any obligation to purchase any Option
Shares prior to the exercise of such option. The option granted
hereby may be exercised by the Underwriters by J.C.
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<PAGE> 11
Bradford & Co. ("Bradford") giving written notice to the Company
setting forth the number of Option Shares to be purchased and the date
and time for delivery of and payment for such Option Shares and
stating that the Option Shares referred to therein are to be used for
the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares. If such notice is given
prior to the First Closing Date (as defined herein), the date set
forth therein for such delivery and payment shall not be earlier than
two full business days thereafter or the First Closing Date, whichever
occurs later. If such notice is given on or after the First Closing
Date, the date set forth therein for such delivery and payment shall
not be earlier than three full business days thereafter. In either
event, the date so set forth shall not be more than four full business
days after the date of such notice. The date and time set forth in
such notice is herein called the "Option Closing Date." Upon exercise
of the option, the Company shall become obligated to sell to the
Underwriters, and, subject to the terms and conditions herein set
forth, the Underwriters shall become obligated to purchase, for the
account of each Underwriter, from the Company, severally and not
jointly, the number of Option Shares specified in such notice. Option
Shares shall be purchased for the accounts of the Underwriters in
proportion to the number of Firm Shares set forth opposite such
Underwriter's name in Schedule I hereto, except that the respective
purchase obligations of each Underwriter shall be adjusted so that no
Underwriter shall be obligated to purchase fractional Option Shares.
(c) Certificates in definitive form for the Firm Shares
which each Underwriter has agreed to purchase hereunder shall be
delivered by or on behalf of the Company to the Underwriters for the
account of such Underwriter against payment by such Underwriter or on
its behalf of the purchase price therefor by wire transfer of
immediately available funds to the order of the Company, at the
offices of Bradford, 330 Commerce Street, Nashville, Tennessee 37201,
or at such other place as may be agreed upon by Bradford and the
Company, at 10:00 A.M., Nashville time, on the third full business day
after this Agreement becomes effective, or, at the election of the
Representatives, on the fourth full business day after this Agreement
becomes effective, if it becomes effective after 4:30 P.M. Eastern
time, or at such other time not later than the seventh full business
day thereafter as the Representatives and the Company may determine,
such time of delivery against payment being herein referred to as the
"First Closing Date." The First Closing Date and the Option Closing
Date are herein individually referred to as the "Closing Date" and
collectively referred to as the "Closing Dates." Certificates in
definitive form for the Option Shares which each Underwriter shall
have agreed to purchase hereunder shall be similarly delivered by or
on behalf of the Company on the Option Closing Date. The certificates
in definitive form for the Shares to be delivered will be in good
delivery form and in such denominations and registered in such names
as Bradford may request not less than 48 hours prior to the First
Closing Date or the Option Closing Date, as the case may be. Such
certificates will be made available for checking and packaging at a
location in New York, New York as may be designated by Bradford, at
least 24 hours prior to the First Closing Date or the Option Closing
Date, as the case may be. It is understood that Bradford may (but
shall not be obligated to) make payment on behalf of any Underwriter
or Underwriters for the Shares to be purchased by such
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<PAGE> 12
Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations
hereunder.
3. Offering by the Underwriters. After the Registration
Statement becomes effective, the several Underwriters propose to offer for sale
to the public the Firm Shares and any Option Shares which may be sold at the
price and upon the terms set forth in the Final Prospectus.
4. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters that:
(a) The Company shall comply with the provisions of and
make all requisite filings with the Commission pursuant to Rules 424
and 430A of the Rules and Regulations and shall notify the
Representatives promptly (in writing, if requested) of all such
filings. The Company shall notify the Representatives promptly of any
request by the Commission for any amendment of or supplement to the
Registration Statement, the Effective Prospectus or the Final
Prospectus or for additional information; the Company shall prepare
and file with the Commission, promptly upon the Representatives'
request, any amendments of or supplements to the Registration
Statement, the Effective Prospectus or the Final Prospectus which, in
the Representatives' opinion, may be necessary or advisable in
connection with the distribution of the Shares; and the Company shall
not file any amendment of or supplement to the Registration Statement,
the Effective Prospectus or the Final Prospectus which is not approved
by the Representatives after reasonable notice thereof. The Company
shall advise the Representatives promptly of the issuance by the
Commission or any jurisdiction or other regulatory body of any stop
order or other order suspending the effectiveness of the Registration
Statement, suspending or preventing the use of any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or
suspending the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution of any proceedings for any such
purpose; and the Company shall use its best efforts to prevent the
issuance of any stop order or other such order and, should a stop
order or other such order be issued, to obtain as soon as possible the
lifting thereof.
(b) The Company will take or cause to be taken all
necessary action and furnish to whomever the Representatives direct
such information as may be reasonably required in qualifying the
Shares for offer and sale under the securities or Blue Sky laws of
such jurisdictions as the Underwriters may designate and will continue
such qualifications in effect for as long as may be reasonably
necessary to complete the distribution of the Shares.
(c) Within the time during which a Final Prospectus
relating to the Shares is required to be delivered under the
Securities Act, the Company shall comply with all requirements imposed
upon it by the Securities Act, as now and hereafter amended, and by
the Rules and Regulations, as from time to time in force, so far as is
necessary to permit the continuance of sales of or dealings in the
Shares as contemplated by the
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<PAGE> 13
provisions hereof and the Final Prospectus. If during such period any
event occurs as a result of which the Final Prospectus as then amended
or supplemented would include an untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Final Prospectus to comply
with the Securities Act, the Company shall promptly notify the
Representatives and shall amend the Registration Statement or
supplement the Final Prospectus (at the expense of the Company) so as
to correct such statement or omission or effect such compliance.
(d) The Company will furnish without charge to the
Representatives and make available to the Underwriters copies of the
Registration Statement (four of which shall be signed and shall be
accompanied by all exhibits, each Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus, and all amendments and
supplements thereto, including any prospectus or supplement prepared
after the effective date of the Registration Statement, in each case
as soon as available and in such quantities as the Underwriters may
reasonably request.
(e) The Company will (A) deliver to the Representatives
at such office or offices as the Representatives may designate as many
copies of the Preliminary Prospectus and Final Prospectus as the
Representatives may reasonably request, (B) for a period of not more
than nine months after the Registration Statement becomes effective,
send to the Underwriters as many additional copies of the Final
Prospectus and any supplement thereto as the Representatives may
reasonably request, and (C) following nine months after the
Registration Statement becomes effective, send to the Underwriters at
their expense as many additional copies of the Final Prospectus and
any supplement thereto as the representatives may reasonably request.
(f) The Company shall make generally available to its
security holders, in the manner contemplated by Rule 158(b) under the
Securities Act as promptly as practicable and in any event no later
than 45 days after the end of its fiscal quarter in which the first
anniversary of the effective date of the Registration Statement
occurs, an earnings statement satisfying the provisions of Section
11(a) of the Securities Act covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement.
(g) The Company will apply the net proceeds from the sale
of the Shares to be sold by it as set forth under the caption "Use of
Proceeds" in the Final Prospectus and will timely file reports on Form
SR with the Commission in accordance with Rule 463 of the Securities
Act or any successor provision.
(h) During a period of five years from the effective date
of the Registration Statement or such longer period as the
Representatives may reasonably request, the Company will furnish to
the Representatives copies of all reports and other communications
(financial or other) furnished by the Company to its shareholders and,
as soon as available, copies of any reports or financial statements
furnished or filed
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<PAGE> 14
by the Company to or with the Commission or any national securities
exchange on which any class of securities of the Company may be
listed.
(i) The Company will, from time to time, after the
effective date of the Registration Statement file with the Commission
such reports as are required by the Securities Act, the Exchange Act
and the Rules and Regulations, and shall also file with foreign, state
and other governmental securities commissions in jurisdictions where
the Shares have been sold by the Underwriters (as the Representatives
shall have advised the Company in writing) such reports as are
required to be filed by the securities acts and the regulations of
those states.
(j) Except pursuant to this Agreement or with the
Representatives' written consent, for a period of 365 days from the
effective date of the Registration Statement, the Company will not,
and the Company has provided agreements executed by each of its
officers, directors and 5% or greater stockholders and Founding
Practices providing that for a period of 365 days from the effective
date of the Registration Statement, such person will not, offer for
sale, sell (other than the issuance by the Company of shares of Common
Stock pursuant to the exercise of options granted pursuant to existing
employee benefit plans and agreements), grant any options (other than
pursuant to existing employee benefit plans and agreements), rights or
warrants with respect to any shares of Common Stock, securities
convertible into shares of Common Stock or any other capital stock of
the Company, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or such other securities or capital stock.
(k) Neither the Company nor any of its officers,
directors or affiliates will take, directly or indirectly, any action
designed to cause or result in, or which might constitute or be
expected to constitute, stabilization or manipulation of the price of
the Common Stock.
(l) The Company will either conduct its business and
operations as described in the Final Prospectus or, if the Company
makes any material change to its business or operations as so
conducted, promptly disclose such change generally to the Company's
securityholders.
(m) If at any time during the 25 day period after the
Registration Statement is declared effective, any rumor, publication
or event relating to or affecting the Company shall occur as a result
of which, in the Representatives' opinion, the market price for the
Shares has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to
or amendment of the Final Prospectus), the Company will, after written
notice from the Representatives advising it as to the effect set forth
above, prepare, consult with the Representatives concerning the
substance of and, subject to the Rules and Regulations, disseminate a
press release or other public statement, reasonably satisfactory to
the Representatives, responding to or commenting on such rumor,
publication or event.
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<PAGE> 15
(n) The Company will use its best efforts to effect the
listing of the Common Stock, subject to notice of issuance, on the
Nasdaq on or before the effective date of the Registration Statement.
(o) Subject to the terms thereof, the Company will do and
perform its obligations under each of the Operative Documents to which
it is a party to the extent required to consummate the transactions
set forth therein and all things required to be done or performed
prior to the Closing Date pursuant to this Agreement.
5. Expenses. The Company agrees with the Underwriters that (a)
whether or not the transactions contemplated by this Agreement are consummated
or this Agreement becomes effective or is terminated, the Company will pay all
fees and expenses incident to the performance of the obligations of the Company
hereunder, including, but not limited to, (i) the Commission's registration
fee, (ii) the expenses of printing (or reproduction) and distributing the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus, the Effective
Prospectus, the Final Prospectus, any amendments or supplements thereto, any
Marketing Materials (as defined herein) and this Agreement and other
underwriting documents, including Underwriter's Questionnaires, Underwriter's
Powers of Attorney, Blue Sky Memoranda, Agreements Among Underwriters and
Selected Dealer Agreements, (iii) fees and expenses of accountants and counsel
for the Company, (iv) expenses of registration or qualification of the Shares
under state Blue Sky and securities laws, including the fees and disbursements
of counsel to the Underwriters in connection therewith, (v) filing fees paid or
incurred by the Underwriters in connection with filings with the NASD, (vi)
expenses of listing the outstanding Common Stock on the Nasdaq, (vii) all
travel, lodging and reasonable living expenses incurred by the Company in
connection with marketing, dealer and other meetings attended by the Company
and the Underwriters in marketing the Shares, (viii) the costs and charges of
the Company's transfer agent and registrar and the cost of preparing the
certificates for the Shares, and (ix) all other costs and expenses incident to
the performance of its obligations hereunder not otherwise provided for in this
Section; and (b) all out-of-pocket expenses, including counsel fees,
disbursements and expenses, incurred by the Underwriters in connection with
investigating, preparing to market and marketing the Shares and proposing to
purchase and purchasing the Shares under this Agreement, will be borne and paid
by the Company if the sale of the Shares provided for herein is not consummated
(i) by reason of the termination of this Agreement by the Company pursuant to
Section 12(a)(i), or (ii) by reason of the termination of this Agreement by the
Representatives pursuant to Section 12(b)(ii), (iii), (iv) or (v) of this
Agreement.
6. Conditions of the Underwriters' Obligations. The respective
obligations of the Underwriters to purchase and pay for the Firm Shares shall
be subject to the accuracy of the representations and warranties of the Company
herein as of the date hereof and as of the Closing Date as if made on and as of
the Closing Date, to the accuracy of the statements of the Company's officers
made pursuant to the provisions hereof, to the performance by the Company of
all of their respective covenants and agreements hereunder and to the following
additional conditions:
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<PAGE> 16
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective not later than 5:30
P.M., Washington, D.C. time, on the day following the date of this
Agreement, or such later time and date as shall have been consented to
by the Representatives and all filings required by Rule 424 and Rule
430A of the Rules and Regulations shall have been made; no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened or, to the knowledge of the Company or the
Underwriters, shall be contemplated by the Commission; any request of
the Commission for additional information (to be included in the
Registration Statement or the Final Prospectus or otherwise) shall
have been complied with to the Representatives' satisfaction; and the
NASD, upon review of the terms of the public offering of the Shares,
shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(b) No Representative shall have advised the Company that
the Registration Statement, Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or any supplement
thereto, contains an untrue statement of fact which, in the
Representatives' reasonable judgment, is material, or omits to state a
fact which, in the Representatives' reasonable judgment, is material
and is required to be stated therein or necessary to make the
statements therein not misleading and the Company shall not have cured
such unsure statement of fact or stated a statement of fact required
to be stated therein.
(c) The Representatives shall have received an opinion,
dated the Closing Date, from Nelson Mullins Riley & Scarborough,
L.L.P., counsel for the Company, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation under the laws of the State
of Delaware, with corporate power and authority to own its
properties and conduct its business as now conducted, and is
duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions where the failure to so
qualify would have a material adverse effect upon the Company
or any of its subsidiaries. The Company holds all licenses,
certificates, permits, franchises and authorizations from
governmental authorities necessary for the conduct of its
business.
(ii) Each of the Company's subsidiaries is validly
existing and in good standing under the laws of the state or
jurisdiction of its incorporation or organization, as the case
may be, with power and authority to own its properties and
conduct its business as now conducted, and is duly qualified
or authorized to do business and is in good standing in all
other jurisdictions where the failure to so qualify would have
a material adverse effect upon the business of the Company and
its subsidiaries. The outstanding stock of each of the
Company's corporate subsidiaries is duly authorized, validly
issued, fully paid and nonassessable. The Company owns all of
the outstanding stock of each of the Company's corporate
subsidiaries, free and clear of all liens,
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<PAGE> 17
encumbrances, equities and claims. Neither the Company nor any
subsidiary has any interest in any partnership or joint
venture. The Company's subsidiaries do not have outstanding
any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell any
shares of capital stock or an ownership interest of such
subsidiary and there are no preemptive rights or other rights
to subscribe for or purchase any shares of the capital stock
or any ownership interest of the Company's subsidiaries. Each
of the Company's subsidiaries holds all licenses,
certificates, permits, franchises and authorizations from
governmental authorities necessary for the conduct of its
business.
(iii) As of the dates specified therein, the
Company had authorized and issued capital stock as set forth
under the caption "Capitalization" in the Final Prospectus.
All of the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and
nonassessable, and the Shares to be sold by the Company have
been duly authorized, and upon issuance thereof and payment
therefor as provided herein, will be validly issued, fully
paid and nonassessable; none of the issued shares have been
issued in violation of or subject to any preemptive rights
provided for by law, agreement or the Company's certificate of
incorporation. The Company does not have outstanding any
options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell any shares of
capital stock, and there are no preemptive rights or other
rights to subscribe for or purchase any shares of the capital
stock of the Company, or any restriction upon the transfer of,
the Shares pursuant to the Company's certificate of
incorporation or bylaws or any agreement or other instrument
to which the Company is a party or by which it may be bound,
except as described in the Effective Prospectus and Final
Prospectus. Neither the filing of the Registration Statement
nor the offer or sale of the Shares as contemplated by this
Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the
registration of any Common Stock or any other securities of
the Company. The Underwriters will receive good and
marketable title to the Shares to be issued and delivered by
the Company pursuant to this Agreement, free and clear of all
liens, encumbrances, claims, security interests, restrictions,
shareholders agreements and voting trusts whatsoever. The
capital stock of the Company and the Shares conform to the
description thereof contained in the Final Prospectus. All
offers and sales of the Company's interests and securities
prior to the date hereof were at all relevant times duly
registered or exempt from the registration requirements of the
Securities Act and were duly registered or the subject of an
exemption from the registration requirements of applicable
state securities or Blue Sky laws.
(iv) The form of stock certificate to be used to
evidence the Common Stock will be in due and proper form and
will comply with all applicable legal requirements under the
Delaware General Corporation Law.
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<PAGE> 18
(v) No consent, approval, authorization or order
of any court or governmental agency or body or third party is
required for the performance of this Agreement by the Company
or the consummation by the Company of the transactions
contemplated hereby, except such as have been obtained under
the Securities Act and such as may be required by the NASD and
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the several
Underwriters, as to which such counsel need not express an
opinion. The performance of this Agreement by the Company and
the consummation by the Company of the transactions
contemplated hereby will not conflict with or result in a
breach or violation by the Company of any of the terms or
provisions of, or constitute a default by the Company under,
any material indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to
such counsel to which the Company is a party or to which the
Company or any of its subsidiaries or their respective
properties is subject, the certificate of incorporation or
bylaws of the Company or any of its subsidiaries, any statute,
or any judgment, decree, order, rule or regulation of any
court or governmental agency or body known to such counsel to
be applicable to the Company or any of its subsidiaries or
their respective properties.
(vi) The Company has full legal right, power and
authority to enter into this Agreement and to issue, sell and
deliver the Shares to be sold by it to the Underwriters as
provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and constitutes the
valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms.
(vii) No consent, approval, authorization or order
of any court or governmental agency or body or third party is
required for the performance of the Operative Documents by the
Company or the consummation by the Company of the transactions
contemplated thereby, except such as have been obtained under
the Securities Act and such as may be required and under state
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the several Underwriters.
The performance of the Operative Documents by the Company and
the consummation by the Company of the transactions
contemplated thereby will not conflict with or result in a
breach or violation by the Company of any of the terms or
provisions of, or constitute a default by the Company under,
any material indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to
such counsel to which the Company or any of its subsidiaries
is a party or to which the Company or any of its subsidiaries
or their respective properties is subject, the certificate of
incorporation or bylaws of the Company or any of its
subsidiaries, any statute, or any judgment, decree, order,
rule or regulation of any court or governmental agency or body
known to such counsel to be applicable to the Company or any
of its subsidiaries or their respective properties.
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<PAGE> 19
(viii) The Company has full legal right, power and
authority to enter into each of the Operative Documents to
which it is a party, and each of the Operative Documents to
which it is a party has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally
binding obligation of the Company enforceable against the
Company in accordance with its terms.
(ix) Except as described in the Final Prospectus,
there is not pending or, to the knowledge of such counsel,
threatened, any action, suit, proceeding, inquiry or
investigation, to which the Company or any of its subsidiaries
is a party, or to which the property of the Company or any of
its subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to
the Company or any of its subsidiaries, could result in any
material adverse change in the business, financial position,
net worth or results of operations, or could materially
adversely affect the properties or assets, of the Company or
any of its subsidiaries.
(x) No default exists, and no event has occurred
which with notice or after the lapse of time to cure or both,
would constitute a default, in the due performance and
observance of any term, covenant or condition of any material
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or to which
their respective properties are subject, or of the certificate
of incorporation or bylaws of the Company.
(xi) Neither the Company nor any of its
subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable
to the Company or any decree of any court or governmental
agency or body having jurisdiction over the Company or any of
its subsidiaries which would have a material adverse effect on
the Company or any of its subsidiaries.
(xii) There are no contracts or documents of the
Company which are required to be filed as exhibits to the
Registration Statement by the Securities Act or by the Rules
and Regulations which have not been so filed.
(xiii) The Company is not an "investment company" or
an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as
amended.
(xiv) The Company's conduct of its business
complies in all material respects with the laws and
governmental regulations relating to the corporate practice of
orthodontics in each jurisdiction in which it conducts its
business (except where the failure to comply would not have a
material adverse effect on the business, prospects,
properties, operations, condition (financial or otherwise) or
results of operation of the Company and its subsidiaries,
taken as a whole.
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<PAGE> 20
(xv) The Registration Statement and all
post-effective amendments thereto have become effective under
the Securities Act, and, to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are threatened, pending or
contemplated by the Commission. All filings required by Rule
424 and Rule 430A of the Rules and Regulations have been made;
the Registration Statement, the Effective Prospectus and Final
Prospectus, and any amendments or supplements thereto, as of
their respective effective or issue dates, complied as to form
in all material respects with the requirements of the
Securities Act and the Rules and Regulations; the descriptions
in the Registration Statement, the Effective Prospectus and
the Final Prospectus of statutes, regulations, legal and
governmental proceedings, and contracts and other documents
are accurate in all material respects and present fairly in
all material respects the information required to be stated;
and such counsel does not know of any pending or threatened
legal or governmental proceedings, statutes or regulations
required to be described in the Final Prospectus which are not
described as required nor of any contracts or documents of a
character required to be described in the Registration
Statement or the Final Prospectus or to be filed as exhibits
to the Registration Statement which are not described and
filed as required.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that the Registration Statement, the
Effective Prospectus and the Final Prospectus or any amendment or supplement
thereto contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made
(except that such counsel need express no view as to financial statements,
schedules and other financial or statistical information included therein).
The opinion to be rendered pursuant to this paragraph (c) may be
limited to federal law, and as to foreign and state law matters, to the laws of
the states or jurisdictions in which such counsel is admitted to practice and
the law of the State of Delaware. Such counsel may rely upon opinions of other
counsel in rendering such opinions provided that such counsel shall state that
they believe that both the Representatives and they are justified in relying
upon such opinions and that such counsel is reasonably satisfactory to you.
(d) The Underwriters shall have received an opinion or
opinions, dated the Closing Date, of Bass, Berry & Sims PLC, counsel
for the Underwriters, with respect to the Registration Statement and
the Final Prospectus, and such other related matters as the
Underwriters may require, and the Company shall have furnished to such
counsel such documents as they may reasonably request for the purpose
of enabling them to pass upon such matters.
(e) The Representatives shall have received from Arthur
Andersen LLP, a letter dated the date hereof and, at the Closing Date,
a second letter dated the Closing
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<PAGE> 21
Date, in form and substance satisfactory to the Representatives,
stating that they are independent public accountants with respect to
the Company and its subsidiaries within the meaning of the Securities
Act and the applicable Rules and Regulations, and containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information of the Company
contained in the Registration Statement and the Prospectus.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further condition
to the obligations of the Underwriters that the Underwriters shall have
determined, after discussions with officers of Company responsible for
financial and accounting matters and with Arthur Andersen LLP, that such
changes, decreases or increases as are set forth in such letters do not reflect
a material adverse change in the total assets, stockholders' equity or
long-term debt of Company as compared with the amounts shown in the latest
balance sheets of Company included in the Final Prospectus, or a material
adverse change in revenues or net income of Company, in each case as compared
with the corresponding period of the prior year.
(f) There shall have been furnished to the
Representatives a certificate, dated the Closing Date and addressed to
you, signed by the Chief Executive Officer and Chief Financial Officer
of the Company, to the effect that:
(i) the representations and warranties of the
Company in Section 1 of this Agreement are true and correct,
as if made at and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for that purpose have been initiated or are pending, or to
their knowledge, threatened under the Securities Act;
(iii) all filings required by Rule 424 and Rule
430A of the Rules and Regulations have been made;
(iv) they have carefully examined the Registration
Statement, the Effective Prospectus and the Final Prospectus,
and any amendments or supplements thereto, and such documents
do not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances under which they were made; and
(v) since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amendment or supplement to
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<PAGE> 22
the Registration Statement, the Effective Prospectus or the Final
Prospectus which has not been so set forth.
(g) The Acquisitions (as defined in the Prospectus) shall
have been effected in accordance with all the terms and conditions set
forth in the Operative Documents, subject only to the transfer of
funds related thereto.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Final
Prospectus, and except as stated therein, the Company has not
sustained any material loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
court or governmental action, order or decree, or become a party to or
the subject of any litigation which is material to the Company, nor
shall there have been any material adverse change, or any development
involving a prospective material adverse change, in the business,
properties, key personnel, capitalization, prospects, net worth,
results of operations or condition (financial or other) of the
Company, which loss, interference, litigation or change, in the
Representatives' reasonable judgment shall render it unadvisable to
commence or continue the offering of the Shares at the offering price
to the public set forth on the cover page of the Prospectus or to
proceed with the delivery of the Shares.
(i) The Shares shall be listed on the Nasdaq.
(j) The Representatives shall have received the Lockup
Agreements.
(k) Local counsel opinions relating to the Acquisitions.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel. The
Company shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives shall reasonably request.
The respective obligations of the Underwriters to purchase and pay for
the Option Shares shall be subject, in their discretion, to the conditions of
this Section 6, except that all references to the "Closing Date" shall be
deemed to refer to the Option Closing Date, if it shall be a date other than
the Closing Date.
7. Condition of the Company's Obligations. The obligations
hereunder of the Company are subject to the condition set forth in Section 6(a)
hereof.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter, and each person, if any, who controls any
Underwriter within the meaning of the
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<PAGE> 23
Securities Act, against any losses, claims, damages or liabilities to
which such Underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based in whole or in part upon: (i) any inaccuracy in the
representations and warranties of the Company contained herein; (ii)
any failure of the Company to perform its obligations hereunder or
under law; (iii) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus,
or any amendment or supplement thereto, (B) any audio or visual
materials supplied by the Company expressly for use in connection with
the marketing of the Shares, including without limitation, slides,
videos, films and tape recordings (the "Marketing Materials") or (C)
in any Blue Sky application or other written information furnished by
the Company filed in any state or other jurisdiction in order to
qualify any or all of the Shares under the securities laws thereof (a
"Blue Sky Application"); (iv) the omission or alleged omission to
state in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or Final Prospectus or any amendment or
supplement thereto, any Marketing Materials or Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading; or (v) any act or failure to act or
any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to
in any loss, claim, damage, liability or action arising out of or
based upon matters covered by clause (i), (ii), (iii), or (iv) above
(provided that the Company shall not be liable under this clause (v)
to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct); and will reimburse each
Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, the Preliminary Prospectus, the Effective Prospectus or
Final Prospectus, or any amendment or supplement thereto, or any
Marketing Materials or Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the
only information so provided is the information included in the last
paragraph on the cover page and in the first and third paragraphs
under the caption "Underwriting" in any Preliminary Prospectus and the
Final Prospectus and the Effective Prospectus).
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of the Company's officers who
signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Securities Act against
any losses, claims, damages or liabilities to which the Company
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<PAGE> 24
or any such director, officer or controlling person may become
subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or
Final Prospectus, or any amendment or supplement thereto, any
Marketing Materials or any Blue Sky Application, or arise out of or
are based upon the omission or the alleged omission to state in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement
thereto, any Marketing Materials or any Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by
any Underwriter specifically for use therein (it being understood that
the only information so provided is the information included in the
last paragraph on the cover page and in the first and third paragraphs
under the caption "Underwriting" in any Preliminary Prospectus and in
the Effective Prospectus and the Final Prospectus).
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, including
governmental proceedings, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under
this Section 8 notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified
party hereunder unless the indemnifying party has been materially
prejudiced thereby and in any event shall not relieve it from
liability otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein, and to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such
indemnified party; and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation except
that the indemnified party shall have the right to employ separate
counsel if, in the indemnified party's reasonable judgment, it is
advisable for the indemnified party to be represented by separate
counsel, and in that event the fees and expenses of separate counsel
shall be paid by the indemnifying party.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement
provided for in the preceding part of this Section 8 is for any reason
held to be unavailable to the Underwriters or the Company or is
insufficient to hold harmless an indemnified party, then the Company
shall contribute to the damages paid by the Underwriters, and the
Underwriters shall contribute to the
- 24 -
<PAGE> 25
damages paid by the Company; provided, however, that no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
amount of such contribution shall (i) be in such proportion as shall
be appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the
offering of the Shares and the consummation of the Combination
Transactions or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, be in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one
hand and the Underwriters on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares purchased under this
Agreement (before deducting expenses) received by the Company, in the
case of the Company, and the total underwriting discounts and
commissions received by the Underwriters with respect to the Shares
purchased under this Agreement, in the case of the Underwriters, bear
to the total gross proceeds from the offering of the Shares under this
Agreement, in each case as set forth in the Prospectus. The relative
fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by
the Company or the Underwriters, the intent of the parties and their
relative knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the
Underwriters agree that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation
(even if the Underwriters were treated as one entity for such
purpose). Notwithstanding the foregoing, no Underwriter or person
controlling such Underwriter shall be obligated to make contribution
hereunder which in the aggregate exceeds the underwriting discount
applicable to the Shares purchased by such Underwriter under this
Agreement, less the aggregate amount of any damages which such
Underwriter and its controlling persons have otherwise been required
to pay in respect of the same or any similar claim. The Underwriters'
obligations to contribute hereunder are several in proportion to their
respective obligations and not joint. For purposes of this Section,
each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Securities Act shall have the same rights to
contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, shall have the same rights to
contribution as the Company.
(e) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened action, suit or proceeding in respect of which
any indemnified party is a party or is (or would be, if a claim were
to be made against such indemnified party) entitled to indemnity
hereunder, unless such settlement includes an unconditional release of
such indemnified
- 25 -
<PAGE> 26
party from all liability on claims that are the subject matter of such
action, suit or proceeding.
9. Default of Underwriters. If any Underwriter defaults in its
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or
less of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each
non-defaulting Underwriter in Schedule I hereto bears to the total number of
Shares set forth opposite the names of all the non-defaulting Underwriters),
the Shares which such defaulting Underwriter or Underwriters agreed but failed
to purchase. If any Underwriter so defaults and the total number of Shares
with respect to which such default or defaults occur is more than ten percent
of the total number of Shares to be sold hereunder, and arrangements
satisfactory to the other Underwriters and the Company for the purchase of such
Shares by other persons (who may include the non-defaulting Underwriters) are
not made within 36 hours after such default, this Agreement, insofar as it
relates to the sale of the Shares, will terminate without liability on the part
of the non-defaulting Underwriters or the Company except for (i) the provisions
of Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the
Company pursuant to Section 5. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company or its
officers and the Underwriters set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (a) any investigation made by or on behalf of
the Company, any of its officers or its directors, any Underwriter or any
controlling person, (b) any termination of this Agreement and (c) delivery of
and payment for the Shares.
11. Effective Date. This Agreement shall become effective at
whichever of the following times shall first occur: (i) at 11:30 A.M.,
Washington, D.C. time, on the next full business day following the date on
which the Registration Statement becomes effective or (ii) at such time after
the Registration Statement has become effective as the Representatives shall
release the Firm Shares for sale to the public; provided, however, that the
provisions of Sections 5, 8, 10 and 11 hereof shall at all times be effective.
For purposes of this Section 11, the Firm Shares shall be deemed to have been
so released upon the release by the Representatives for publication, at any
time after the Registration Statement has become effective, of any newspaper
advertisement relating to the Firm Shares or upon the release by the
Representatives of telegrams offering the Firm Shares for sale to securities
dealers, whichever may occur first.
12. Termination.
(a) The Company's obligations under this Agreement may be
terminated by the Company by notice to the Representatives (i) at any
time before it becomes
- 26 -
<PAGE> 27
effective in accordance with Section 11 hereof, or (ii) in the event
that the condition set forth in Section 8 shall not have been
satisfied at or prior to the First Closing Date.
(b) This Agreement may be terminated by the
Representatives by notice to the Company (i) at any time before it
becomes effective in accordance with Section 11 hereof; (ii) in the
event that at or prior to the First Closing Date the Company shall
have failed, refused or been unable to perform any agreement on the
part of the Company to be performed hereunder or any other condition
to the obligations of the Underwriters hereunder is not fulfilled;
(iii) if at or prior to the Closing Date trading in securities on
Nasdaq, the American Stock Exchange or the over-the-counter market
shall have been suspended or materially limited or minimum or maximum
prices shall have been established on either of such exchanges or such
market, or a banking moratorium shall have been declared by Federal or
state authorities; (iv) if at or prior to the Closing Date trading in
securities of the Company shall have been suspended; or (v) if there
shall have been such a material adverse change in general economic,
political or financial conditions or if the effect of international
conditions on the financial markets in the United States shall be such
as, in your reasonable judgment, makes it inadvisable to commence or
continue the offering of the Shares at the offering price to the
public set forth on the cover page of the Prospectus or to proceed
with the delivery of the Shares.
(c) Termination of this Agreement pursuant to this
Section 12 shall be without liability of any party to any other party
other than as provided in Sections 5 and 8 hereof.
13. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be mailed or delivered or
telegraphed and confirmed in writing to the Representatives in care of J. C.
Bradford & Co., J. C. Bradford Financial Center, 330 Commerce Street,
Nashville, Tennessee 37201, Attention: Thomas C. Wylly, II, or if sent to the
Company shall be mailed, delivered or telegraphed and confirmed in writing to
the Company at 23848 Hawthorne Boulevard, Suite 200, Torrance California 90505,
Attention Sam Westover.
14. Miscellaneous. This Agreement shall inure to the benefit of
and be binding upon the several Underwriters, the Company and its successors
and legal representatives. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement. This Agreement
and all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Company and the several Underwriters and for the
benefit of no other person except that (a) the representations and warranties
and indemnities of the Company contained in this Agreement shall also be for
the benefit of any person or persons who control any Underwriter within the
meaning of Section 15 of the Securities Act, and (b) the indemnities by the
Underwriters shall also be for the benefit of the directors of the Company,
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the
- 27 -
<PAGE> 28
Securities Act. No purchaser of Shares from any Underwriter will be deemed a
successor because of such purchase. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Tennessee. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. Bradford hereby represents and warrants to the Company that it
has authority to act hereunder on behalf of the several Representatives and
Underwriters, and any action hereunder taken by the Representatives will be
binding upon all the Underwriters.
If the foregoing is in accordance with your understanding of our
agreement, please indicate your acceptance thereof in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among the Company and each of the several Underwriters.
Very truly yours,
ORTHALLIANCE, INC.
By:
------------------------------------
Title:
---------------------------------
Confirmed and accepted as of the
date first above written.
J.C. BRADFORD & CO., L.L.C.
OPPENHEIMER & CO. INC.
For themselves and as
Representatives of the Several
Underwriters
By:
---------------------------------
Partner
- 28 -
<PAGE> 29
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares to
Underwriter be Purchased
- ----------- ------------
<S> <C>
------------
Total
============
</TABLE>
- 29 -
<PAGE> 30
SCHEDULE II
FOUNDING PRACTICES
- 30 -
<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
11
<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.
12
<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
13
<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.
14
<PAGE> 18
(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
15
<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;
16
<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
17
<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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<PAGE> 23
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 _____________, ______, by and between
Premier Orthodontic Group, Inc., a Delaware corporation, and its successors and
assigns (hereinafter referred to as "Purchaser") and _____________________, a
__________________ (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)");
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; and
WHEREAS, Seller and Purchaser intend that the sale contemplated
hereunder, along with (i) the acquisition of the other founding practices, (ii)
the merger between Purchaser and US Orthodontic Care, Inc. ("USOC"), 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 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
<PAGE> 2
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 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 _________
_____________, 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
<PAGE> 3
deliveries constitute the "Closing." The parties hereto shall use their
reasonable best efforts to satisfy all appropriate conditions as soon as
possible.
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 twenty percent (120%) 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 professional association
formed and in existence under the laws of the State of _______________ 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 including the date of Closing unless the reason
for such policies ceases or such policies are replaced in the ordinary course
of business.
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<PAGE> 5
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.
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.
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<PAGE> 6
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, 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
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<PAGE> 7
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 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
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<PAGE> 8
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:
(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
8
<PAGE> 9
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 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
9
<PAGE> 10
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.
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.
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<PAGE> 11
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 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
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<PAGE> 12
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 Seller 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 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."
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<PAGE> 13
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:
(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).
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<PAGE> 14
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:
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:
______________________________
______________________________
______________________________
______________________________
Telephone: __________________
Telecopier: __________________
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<PAGE> 15
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 _____________ without regard for its
principles of conflicts of laws.
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) 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.
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<PAGE> 16
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.
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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<PAGE> 17
SCHEDULE 2.2
OrthAlliance has succeeded to the rights to purchase and sale agreements
substantially identical to Exhibit 2.2 as follows:
1. Purchase and Sale Agreement with Randall K. Bennett, D.D.S.
2. Purchase and Sale Agreement with Kenneth Brehnan, D.D.S.
3. Purchase and Sale Agreement with Sammy A. Caves, D.M.D., P.C.
4. Purchase and Sale Agreement with Michael J. DeVito, D.D.S., P.A.
5. Purchase and Sale Agreement with Douglas D. Durbin, D.M.D., M.S.D.,
P.S.C.
6. Purchase and Sale Agreement with Daniel J. Enger, Jr., D.D.S., P.A.
7. Purchase and Sale Agreement with Daniel J. Enger, Jr., D.D.S.
8. Purchase and Sale Agreement with Raymond Fortson, D.D.S.
9. Purchase and Sale Agreement with Frederick A. Ghiz, D.D.S., M.S., P.C.
10. Purchase and Sale Agreement with Paul J. Giorgetti, Jr., D.D.S., P.A.
11. Purchase and Sale Agreement with John R. Goode, D.D.S.
12. Purchase and Sale Agreement with Michael D. Goodwin, D.D.S., M.S., A
Professional Corporation.
13. Purchase and Sale Agreement with Jack L. Green, Jr., D.D.S., P.A.
14. Purchase and Sale Agreement with William Griffin, D.D.S.
15. Purchase and Sale Agreement with Gregg G. Hipple, D.D.S., M.S., Ltd.
16. Purchase and Sale Agreement with Joseph C. Jackson, Jr., D.D.S., P.A.
17. Purchase and Sale Agreement with Stuart Kimmel, D.D.S., P.A.
18. Purchase and Sale Agreement with Don E. Lahrman, D.D.S., M.S.D., Inc.
19. Purchase and Sale Agreement with Causey C. Lee, DDS, P.A.
20. Purchase and Sale Agreement with Joel Martinez, D.D.S., Inc.
21. Purchase and Sale Agreement with Winston C. Morris, D.M.D., P.A.
22. Purchase and Sale Agreement with Brian J. Nettleman, D.D.S.
23. Purchase and Sale Agreement with R.O. Parsons, D.M.D., M.S.D., P.C.
<PAGE> 18
24. Purchase and Sale Agreement with Victor S. Sands, D.D.S., a
Professional Corp.
25. Purchase and Sale Agreement with Gregory P. Scott, D.D.S., P.A.
26. Purchase and Sale Agreement with A. Paul Serrano, D.D.S., P.C.
27. Purchase and Sale Agreement with Douglas E. Smith, D.D.S., P.C.
28. Purchase and Sale Agreement with D.B. Snead, D.M.D., P.A.
29. Purchase and Sale Agreement with Gilbert H. Snow, D.D.S., Inc.
30. Purchase and Sale Agreement with Les O. Starnes, D.D.S.
31. Purchase and Sale Agreement with Mark D. Thebaut, D.D.S., P.C.
32. Purchase and Sale Agreement with Trawick Orthodontic Center, P.A.
33. Purchase and Sale Agreement with Baron V. Whateley, D.D.S., M.S., P.C.
<PAGE> 1
EXHIBIT 2.3
AMENDED AND RESTATED
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
by and among
PREMIER ORTHODONTIC GROUP, INC.
____________________,
____________________,
and
___________________________
DATED AS OF __________________, 1997
THIS AGREEMENT IS SUBJECT TO ARBITRATION.
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<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
executed as of the ____ day of __________, ______, by and among PREMIER
ORTHODONTIC GROUP, INC., a Delaware corporation ("Premier"), __________________
(the "Company"), and _____________________ and _____________________, 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 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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<PAGE> 3
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
directors 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 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,
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<PAGE> 4
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
_______________________ 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 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
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<PAGE> 5
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 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
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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;
(e) Deed, bill of sale or other document evidencing an
interest in or agreement to purchase or sell real or personal property;
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(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;
(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;
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(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' 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
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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 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,
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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 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
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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 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.
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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 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,
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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.
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
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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.
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.
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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"), in substantially the form attached hereto as Exhibit 6.7,
pursuant to which Premier will provide management 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.
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.
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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 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
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;
(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
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(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 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.
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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 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
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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
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
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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, 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.
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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 (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.
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<PAGE> 22
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:
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
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<PAGE> 23
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.
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
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<PAGE> 24
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.
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<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:
-------------------------- -------------
25
<PAGE> 26
INDEX TO EXHIBITS
Exhibit Description
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
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 twenty (120%) 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
SCHEDULE 2.3
OrthAlliance has succeeded to the rights to agreements substantially
identical to Exhibit 2.3 as follows:
1. Agreement and Plan of Reorganization with John W. Bryant,
D.D.S., A Professional Corporation.
2. Agreement and Plan of Reorganization with Joseph Gray,
D.D.S., A Professional Corporation.
3. Agreement and Plan of Reorganization with Robert E.
Hirschfield, D.D.S., P.A.
4. Agreement and Plan of Reorganization with Orthodontic
Associates.
5. Agreement and Plan of Reorganization with B.C. McConnell,
Jr., D.D.S., P.A.
6. Agreement and Plan of Reorganization with Raymond A.
McLendon, D.D.S., P.C.
7. Agreement and Plan of Reorganization with Brian J. Nettleman,
D.D.S., P.C.
8. Agreement and Plan of Reorganization with Robert C. Penny,
D.D.S., M.S., Inc.
9. Agreement and Plan of Reorganization with Ronald G. Philipp,
D.M.D., P.A.
10. Agreement and Plan of Reorganization with Keith J. Stewart,
D.D.S., P.C.
11. Agreement and Plan of Reorganization with Cary A. Williams,
D.M.D., P.A.
<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
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<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,
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<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
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<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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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").
- 2 -
<PAGE> 3
(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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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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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.
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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 __, 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 2,600,000 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
AMENDED AND RESTATED
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
________________ (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
<PAGE> 2
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.
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, 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.
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.
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<PAGE> 3
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. 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
3
<PAGE> 4
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 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%).
4
<PAGE> 5
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 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) 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.
5
<PAGE> 6
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 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
6
<PAGE> 7
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 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
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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 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. USOC shall receive an annual Service 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 USOC 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 USOC 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 Service
Fee, the Orthodontic Entity shall pay to USOC 25% of the reduction, if any, of
the Center's annual overhead percentage as compared to the immediately preceding
year as reasonably determined by USOC 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. 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.
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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 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;
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(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%);
(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.
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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 ________________ 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
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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
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
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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").
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.
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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 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 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
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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.
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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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 ______________. 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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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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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:
ARROWHEAD ORTHODONTIC ASSOCIATES, P.C.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
USOC:
US ORTHODONTIC CARE, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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EXHIBIT 3.1
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 10.1
OrthAlliance has succeeded to the rights to agreements substantially
identical to Exhibit 10.1 as follows:
1. Service Agreement with Sammy A. Caves, D.M.D., P.C.
2. Service Agreement with Crawford Orthodontic Care, P.C.
3. Service Agreement with Kentucky Center for Orthodontics,
P.S.C.
4. Service Agreement with Raymond Fortson D.D.S. Professional
Corporation.
5. Service Agreement with Suellen Rodeffer & David Tod Garner,
D.D.S., P.A.
6. Service Agreement with Michael D. Goodwin, D.D.S., M.S.,
Professional Corporation.
7. Service Agreement with Jack L. Green, Jr., D.D.S., P.A.
8. Service Agreement with Arrowhead Orthodontic Associates, P.C.
9. Service Agreement with Joseph C. Jackson, Jr., D.D.S. P.A.
10. Service Agreement with Orthodontic Associates of the Delaware
Valley, P.C.
11. Service Agreement with Stuart Kimmel, D.D.S., P.A.
12. Service Agreement with Don E. Lahrman, D.D.S., M.S.D., Inc.
13. Service Agreement with Robert P. Lorentz, D.D.S., M.S., P.C.
14. Service Agreement with Joel Martinez, D.D.S., Inc.
15. Service Agreement with Mitchell Dentistry, P.C.
16. Service Agreement with Winston C. Morris, D.M.D., P.A.
<PAGE> 22
17. Service Agreement with R.O. Parsons, D.M.D., M.S.D., P.C.
18. Service Agreement with Columbus Orthodontic Associates, P.C.
19. Service Agreement with Penny Orthodontics, P.C.
20. Service Agreement with Birmingham OrthoCare, P.C.
21. Service Agreement with Pickron Orthodontic Care, P.C.
22. Service Agreement with Richard L. Rothstein, D.M.D., P.A.
23. Service Agreement with Gregory P. Scott, D.D.S., P.A.
24. Service Agreement with Douglas E. Smith, D.D.S., P.C.
25. Service Agreement with Trawick Orthodontic Center, P.A.
26. Service Agreement with Yurfest Holdings, Ltd.
27. Service Agreement with R.A. McLendon, D.D.S., P.L.L.C. A
material detail in which this agreement differs from Exhibit
10.1 is that the Service Fee paid by R.A. McLendon, D.D.S.,
P.L.L.C. is 13.5%.
<PAGE> 1
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.
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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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<PAGE> 13
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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<PAGE> 14
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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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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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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(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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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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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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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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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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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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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:
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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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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<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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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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<PAGE> 2
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 __________________
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
_________________ 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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<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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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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<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 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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<PAGE> 8
(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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<PAGE> 9
(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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<PAGE> 10
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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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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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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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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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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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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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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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 10.7
ORTHALLIANCE, INC.
1997 EMPLOYEE STOCK OPTION PLAN
<PAGE> 2
ORTHALLIANCE, INC.
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. 1997 Employee Stock
Option Plan, the terms of which are set forth herein.
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. 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
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<PAGE> 6
provisions of this Plan. Subject to the 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
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<PAGE> 7
having been optioned or issued in computing the number of shares of Stock
remaining available for Options hereunder.
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, 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.
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(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, 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:
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(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 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
Incentive 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
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<PAGE> 10
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 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; or that all or a portion of the Exercise Price may be paid by the
Optionee's execution of a recourse promissory note the
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<PAGE> 11
principal amount of which shall be equal to at least the Exercise Price or
relevant portion thereof, subject to compliance with applicable state and
federal laws, rules and regulations.
(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 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.
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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).
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
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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
(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.
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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.
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. 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 the amounts and at the times specified on Schedule A. The Option
shall expire and shall not be
<PAGE> 16
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, (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, or (v) payment of all or a portion of the Exercise Price by
Optionee's execution of a recourse promissory note, subject to compliance with
applicable federal and state laws. 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
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<PAGE> 17
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) UNLESS AND TO THE EXTENT OTHERWISE PROVIDED IN SCHEDULE A,
IN THE EVENT OF THE RETIREMENT OF THE OPTIONEE AT THE NORMAL RETIREMENT DATE AS
PRESCRIBED FROM TIME TO TIME BY THE COMPANY OR ANY SUBSIDIARY, THE OPTIONEE
SHALL CONTINUE TO HAVE THE RIGHT TO EXERCISE ANY OPTIONS FOR SHARES WHICH WERE
PURCHASABLE AT THE DATE OF THE OPTIONEE'S RETIREMENT UNTIL THE EXPIRATION DATE
OF SUCH OPTION].
(d) 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
- 3 -
<PAGE> 18
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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<PAGE> 19
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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<PAGE> 20
(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 attested by
the Secretary or an Assistant Secretary of the Company, and the Optionee has
executed this Stock Option Agreement, all as of the day and year first above
written.
COMPANY:
Attest: ORTHALLIANCE, INC.
By:
- ------------------------------ --------------------------
Name: Name:
------------------------- ------------------------
Title: Title:
------------------------ -----------------------
OPTIONEE:
By:
--------------------------
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<PAGE> 21
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:
<PAGE> 22
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) (3) evidence of a cashless exercise as set forth in Section 6 of the
Agreement, and/or (4) delivery of a recourse promissory note.
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.
<PAGE> 2
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
2
<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.
3
<PAGE> 4
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.
4
<PAGE> 5
(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
5
<PAGE> 6
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
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 11, 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 (6,565)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 (6,565)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 (6,565)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 (.60)
</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
--------------------
