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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 1, 2000
ORTHALLIANCE, INC.
-------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 000-22975 95-4632134
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(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
21535 HAWTHORNE BOULEVARD, SUITE 200
TORRANCE, CALIFORNIA 90503
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (310) 792-1300
NOT APPLICABLE
--------------
(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets.
Effective March 1, 2000, OrthAlliance New Image, Inc. ("Buyer"), a wholly
owned subsidiary of OrthAlliance, Inc. ("Parent"), acquired substantially all of
the assets of New Image Orthodontic Group, Inc. ("Seller") in a transaction
structured as an asset purchase. The assets include practice management
agreements with 36 orthodontists operating at 50 locations. The consideration
paid includes approximately $5.5 million in cash, the issuance of approximately
$12.9 million in promissory notes to Seller and the assumption by Buyer of
approximately $13.4 million in indebtedness from Seller. The cash portion of the
purchase price was provided from working capital and supplemented by borrowings
under the Parent's existing Credit Agreement under which First Union National
Bank is agent. Parent and Buyer intend to continue to use substantially all of
the plant, equipment and other physical property included within the acquired
assets in the management of orthodontic practices.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements required by Item 7(a) will be filed by an
amendment to this Form 8-K no later than May 15, 2000.
(b) Pro Forma Financial Information.
The pro forma financial statements required by Item 7(b) will be filed
by amendment to this Form 8-K no later than May 15, 2000.
(c) Exhibits.
The following exhibits are filed herewith or incorporated by reference
herein:
Exhibit Number Description
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2.1 Purchase and Sale Agreement, dated as of February 1,
2000, by and among OrthAlliance, Inc., OrthAlliance
New Image, Inc. and New Image Orthodontic Group, Inc.
99.1 Press Release of OrthAlliance, Inc. issued March 1, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ORTHALLIANCE, INC.
By: /s/ SAM WESTOVER
Name: Sam Westover
Title: President and Chief Executive Officer
Dated: March 15, 2000
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EXHIBIT INDEX
Exhibit Number Description
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2.1 Purchase and Sale Agreement, dated as of February 1, 2000,
by and among OrthAlliance, Inc., OrthAlliance New Image,
Inc. and New Image Orthodontic Group, Inc.
99.1 Press Release of OrthAlliance, Inc. issued March 1, 2000.
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EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
dated as of
February 1, 2000
by and among
ORTHALLIANCE, INC.,
ORTHALLIANCE NEW IMAGE, INC.
and
NEW IMAGE ORTHODONTIC GROUP, INC.
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TABLE OF CONTENTS
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ARTICLE 1 PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES......................................12
SECTION 1.1. Transferred Assets......................................................12
SECTION 1.2. Excluded Assets.........................................................14
SECTION 1.3. Assumed Liabilities.....................................................15
SECTION 1.4. Excluded Liabilities....................................................15
SECTION 1.5. Purchase Price..........................................................16
SECTION 1.6. Tax Allocation..........................................................17
ARTICLE 2 CLOSING...............................................................................17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF NEW IMAGE...........................................17
SECTION 3.1. Corporate Existence and Power...........................................18
SECTION 3.2. Corporate Authorization.................................................18
SECTION 3.3. Governmental Authorization..............................................18
SECTION 3.4. Non-Contravention.......................................................18
SECTION 3.5. Voting Agreement Parties................................................19
SECTION 3.6. Subsidiaries............................................................19
SECTION 3.7. Financial Statements....................................................19
SECTION 3.8. Absence of Certain Changes..............................................20
SECTION 3.9. Litigation..............................................................22
SECTION 3.10. Compliance with Laws....................................................22
SECTION 3.11. Licenses................................................................22
SECTION 3.12. Taxes...................................................................23
SECTION 3.13. Contracts...............................................................23
SECTION 3.14. Allied Practices........................................................26
SECTION 3.15. Employee Benefit Plans..................................................26
SECTION 3.16. Employees...............................................................29
SECTION 3.17. Insurance...............................................................29
SECTION 3.18. Year 2000...............................................................30
SECTION 3.19. Related Party Transactions..............................................30
SECTION 3.20. Environmental Matters...................................................31
SECTION 3.21. Properties..............................................................32
SECTION 3.22. Condition and Sufficiency of Assets.....................................33
SECTION 3.23. Intellectual Property Assets............................................33
SECTION 3.24. Finders' or Advisers' Fees..............................................33
SECTION 3.25. State Takeover Statutes.................................................34
SECTION 3.26. Securities Representations..............................................34
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT....................................34
SECTION 4.1. Corporate Existence and Power...........................................34
SECTION 4.2. Corporate Authorization.................................................34
SECTION 4.3. Governmental Authorization..............................................35
SECTION 4.4. Non-Contravention.......................................................35
SECTION 4.5. Commission Filings and Financial Statements.............................36
SECTION 4.6. Validity of Notes.......................................................36
SECTION 4.7. Disclosure Documents....................................................37
SECTION 4.8. Absence of Certain Changes..............................................37
SECTION 4.9. Litigation..............................................................37
SECTION 4.10. Compliance with Laws....................................................37
SECTION 4.11. Finders' or Advisers' Fees..............................................37
ARTICLE 5 COVENANTS OF NEW IMAGE................................................................38
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SECTION 5.1. Conduct of New Image....................................................38
SECTION 5.2. New Image Stockholder Meeting; Proxy Material...........................38
SECTION 5.3. Imagix..................................................................39
SECTION 5.4. Insurance...............................................................39
SECTION 5.5. Purchase Agreement Rights...............................................39
SECTION 5.6 Updated Financial Statements............................................39
SECTION 5.7 Releases................................................................40
SECTION 5.8 Cafeteria Plans.........................................................40
ARTICLE 6 COVENANTS OF BUYER AND PARENT.........................................................40
SECTION 6.1. Conduct of Buyer and Parent.............................................40
SECTION 6.2. [Reserved]..............................................................41
SECTION 6.3. Stock Options and Employee Benefits.....................................41
SECTION 6.4. Preparation of Information Statement....................................43
SECTION 6.5. Registration of Shares Subject to Stock Options.........................43
SECTION 6.6. Nomination of Board Member..............................................44
SECTION 6.7. Senior Note Amendments..................................................44
ARTICLE 7 COVENANTS OF BUYER, PARENT AND NEW IMAGE..............................................44
SECTION 7.1. Reasonable Best Efforts.................................................44
SECTION 7.2. Certain Filings.........................................................45
SECTION 7.3. Access to Information...................................................46
SECTION 7.4. Public Announcements....................................................46
SECTION 7.5. Further Assurances......................................................46
SECTION 7.6. Notices of Certain Events...............................................47
SECTION 7.7. No Solicitation.........................................................47
SECTION 7.8. Takeover Statutes.......................................................48
SECTION 7.9. Insurance...............................................................48
SECTION 7.10. Post-Closing Cooperation................................................49
SECTION 7.11. Non-Solicitation........................................................49
ARTICLE 8 CONDITIONS TO THE TRANSACTION.........................................................49
SECTION 8.1. Conditions to the Obligations of the Parties............................49
SECTION 8.2. Conditions to the Obligations of Buyer and Parent.......................50
SECTION 8.3. Conditions to the Obligations of New Image..............................51
ARTICLE 9 TERMINATION...........................................................................53
SECTION 9.1. Termination.............................................................53
SECTION 9.2. Effect of Termination...................................................54
SECTION 9.3. Termination Fee.........................................................54
ARTICLE 10 INDEMNIFICATION......................................................................54
SECTION 10.1. Survival................................................................54
SECTION 10.2. Indemnification by New Image............................................55
SECTION 10.3. Indemnification by Buyer................................................55
SECTION 10.4. Limitations on Amount...................................................56
SECTION 10.5. Time Limitations........................................................56
SECTION 10.6 Deduction for Amounts Recoverable from Other Sources....................56
SECTION 10.7. Mandatory Set-Off.......................................................57
SECTION 10.8. Indemnification Procedures - Third Party Claims.........................58
SECTION 10.9. Indemnification Procedures - Other Claims...............................59
SECTION 10.10. Investor Representative.................................................59
ARTICLE 11 DEFINED TERMS........................................................................60
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ARTICLE 12 MISCELLANEOUS........................................................................65
SECTION 12.1. Notices.................................................................65
SECTION 12.2. Amendments; No Waivers..................................................66
SECTION 12.3. Expenses................................................................66
SECTION 12.4. Successors and Assigns..................................................67
SECTION 12.5. Governing Law...........................................................67
SECTION 12.6. Jurisdiction............................................................67
SECTION 12.7. Waiver of Jury Trial....................................................68
SECTION 12.8. Counterparts; Effectiveness.............................................68
SECTION 12.9. Entire Agreement........................................................68
SECTION 12.10. Captions; References....................................................68
SECTION 12.11. Severability............................................................68
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EXHIBITS
List of Exhibits
Exhibit A -- Voting Agreement
Exhibit B -- Transition Agreement and Release
Exhibit C -- Employee Release
Exhibit D -- Bill of Sale, Assignment and Assumption Agreement
Exhibit E-1 -- Form of Lease Assignment
Exhibit E-2 -- Form of Doctor Consent
Exhibit F -- Indemnification Agreement
Exhibit G -- Buyer Guaranty
Exhibit H-1 -- Investor Release
Exhibit H-2 -- Directors and Officers Release
Exhibit H-3 -- Doctor Release
Exhibit I -- One Year Notes
Exhibit J -- Parent Guaranty
Exhibit K -- Series A Five Year Notes
Exhibit L -- Series B Five Year Notes
Exhibit M -- Three Year Notes
Exhibit N -- Securities Representation Letter
Exhibit O -- Proposed Plan of Dissolution and Amendments to Articles
of Incorporation
List of Schedules
Schedule 1.2(f) Miscellaneous Excluded Assets
Schedule 1.3(e) Miscellaneous Assumed Liabilities
Schedule 1.4(c) Miscellaneous Excluded Liabilities
Schedule 6.3(a) Allied Orthodontist Stock Options
Schedule 6.3(f) Transition Bonuses and Severance Payments
Schedules 6.7(i), (ii) Senior Note Amendments
Schedule 7.1(a) Miscellaneous Required Actions
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INDEX TO DEFINITIONS
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Section
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Acquisition Proposal................................................................................7.7(c)
Agreement.........................................................................................Preamble
Allied Orthodontists..................................................................................3.14
Allied Practices......................................................................................3.14
Applicable Contract.............................................................................Article 11
Assumed Liabilities....................................................................................1.3
Business..........................................................................................Recitals
Buyer.............................................................................................Preamble
Buyer Disclosure Schedules...........................................................Preamble of Article 4
Buyer Indemnified Persons.............................................................................10.2
Cafeteria Plan......................................................................................1.2(b)
Cafeteria Plan Account..............................................................................1.2(b)
Cash Amount.........................................................................................1.5(a)
Closing..........................................................................................Article 2
Closing Date.....................................................................................Article 2
Code............................................................................................Article 11
Commission..........................................................................................4.5(a)
Components............................................................................................3.18
Confidentiality Agreement..............................................................................7.3
Contract........................................................................................Article 11
Current New Image Balance Sheet.....................................................................3.7(a)
Damages...............................................................................................10.2
Directors and Officers Release..................................................................Article 11
Doctor Consent......................................................................................7.1(d)
Effective Time...................................................................................Article 2
Employee Plan.......................................................................................1.2(b)
Employee Release....................................................................................6.3(h)
Encumbrance.....................................................................................Article 11
End Date.....................................................................................9.1(a)(ii)(A)
Environment.....................................................................................Article 11
Environmental, Health, and Safety Liabilities...................................................Article 11
Environmental Law...............................................................................Article 11
ERISA..............................................................................................3.15(a)
ERISA Affiliate.................................................................................Article 11
ERISA Plan.........................................................................................3.15(a)
Exchange Act...........................................................................................4.3
Excluded Assets........................................................................................1.2
Excluded Liabilities...................................................................................1.2
Exhibits.............................................................................................12.10
Facilities......................................................................................Article 11
GAAP................................................................................................3.7(a)
General Cap........................................................................................10.4(a)
Governmental Authority..........................................................................Article 11
GS Investors....................................................................................Article 11
GS Liabilities.................................................................................1.4(b)(vii)
Hazardous Activity..............................................................................Article 11
Hazardous Materials.............................................................................Article 11
Hired Employees.....................................................................................6.3(b)
Imagix.................................................................................................3.6
Imagix Business................................................................................Section 5.3
Imagix Premises................................................................................Section 5.3
Income Taxes....................................................................................Article 11
Information Statement..................................................................................4.7
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Intellectual Property Assets....................................................................Article 11
Investor Release................................................................................Article 11
Investor Representative..............................................................................10.10
IRS.............................................................................................Article 11
Knowledge.......................................................................................Article 11
Legal Requirement...............................................................................Article 11
Licenses........................................................................................Article 11
Material Adverse Effect.........................................................................Article 11
Material Adverse Effect on Parent...............................................................Article 11
Monthly Financial Statements........................................................................3.7(a)
New Image.........................................................................................Preamble
New Image Disclosure Schedules.......................................................Preamble of Article 3
New Image Financial Statements......................................................................3.7(a)
New Image Indemnified Persons.........................................................................10.3
New Image Stockholder Approval......................................................................5.2(a)
New Image Stockholder Meeting.......................................................................5.2(a)
New Notes.......................................................................................Article 11
Occupational Safety and Health Law..............................................................Article 11
One Year Notes..................................................................................Article 11
Parent............................................................................................Preamble
Parent Commission Documents.........................................................................4.5(a)
Parent Common Stock.................................................................................6.3(a)
Parent Financial Statements.........................................................................4.5(b)
Parent Guaranty.................................................................................Article 11
PBGC............................................................................................Article 11
Permitted Encumbrances..........................................................................Article 11
Person..........................................................................................Article 11
Practice Business Expenses......................................................................Article 11
Practice Management Agreements..................................................................3.13(a)(i)
Proceeding......................................................................................Article 11
Purchase Price.........................................................................................1.5
Records...............................................................................................7.10
Release.........................................................................................Article 11
Replacement Note....................................................................................7.1(d)
Schedules............................................................................................12.10
Sections.............................................................................................12.10
Securities Act.........................................................................................3.3
Securities Representation Letter.......................................................................5.7
Series A Five Year Notes........................................................................Article 11
Series B Five Year Notes........................................................................Article 11
Severance Payment...................................................................................6.3(f)
Specified Employee Plan............................................................................3.15(a)
Subsidiary......................................................................................Article 11
Substantial Detriment...............................................................................7.1(b)
Tax.............................................................................................Article 11
Tax Consideration......................................................................................1.6
Tax Return......................................................................................Article 11
Termination Fee.....................................................................................9.3(c)
Threat of Release...............................................................................Article 11
Three Year Notes................................................................................Article 11
Threshold Amount...................................................................................10.4(a)
Transaction.......................................................................................Recitals
Transaction Costs..................................................................................12.3(a)
Transferred Assets.....................................................................................1.1
Transition Agreement and Release....................................................................6.3(f)
Transition Bonus....................................................................................6.3(f)
Voting Agreements.................................................................................Recitals
Year 2000 Capabilities................................................................................3.18
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") dated as of February 1,
2000, is by and among ORTHALLIANCE, INC., a Delaware corporation ("Parent"),
ORTHALLIANCE NEW IMAGE, INC., a Delaware corporation ("Buyer"), and NEW IMAGE
ORTHODONTIC GROUP, INC., a Georgia corporation ("New Image").
RECITALS
WHEREAS, New Image engages in the business of providing management and
consulting services to Allied Practices (as defined) which provide through
Allied Orthodontists (as defined) orthodontic services to the public (the
"Business");
WHEREAS, Buyer desires to purchase from New Image, and New Image desires to
sell to Buyer, the Business, including substantially all assets of New Image
associated therewith (the "Transaction");
WHEREAS, the Boards of Directors of each of Buyer, Parent and New Image
have approved this Agreement, and deem it advisable and in the best interests of
their respective stockholders to consummate the Transaction on the terms and
conditions set forth herein; and
WHEREAS, as a condition and inducement to Buyer's willingness to enter into
this Agreement, each GS Investor, each officer and director of New Image and
each holder of five percent (5%) or more of any class or series of New Image
Securities is entering into a voting agreement in favor of Buyer concurrently
with this Agreement in the form attached hereto as Exhibit A (the "Voting
Agreements") and each GS Investor is entering into an Indemnification Agreement
in favor of Buyer and Parent concurrently with this Agreement.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES
SECTION 1.1. Transferred Assets.
Subject to the terms and conditions set forth in this Agreement, at the
Closing the Buyer shall purchase, and the New Image shall sell, convey, assign,
transfer and deliver to Buyer, all of New Image's assets, including without
limitation all right, title and interest of New Image in and to the assets used
in connection with the Business by New Image and the Allied Practices, but
excluding the Excluded Assets (together, the "Transferred Assets"). Without
limiting the generality of the foregoing, the Transferred Assets shall include
all of New Image's right, title, and interest in and to the following:
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(a) Real property owned in fee and leasehold estates and the related lease
and sublease agreements, whether as owner, lessee or sublessee, in each case
which property is used in the conduct of the Business by New Image and the
Allied Practices, together with all other buildings, fixtures and improvements
thereon, and all rights, privileges, permits and easements appurtenant thereto;
(b) Practice Management Agreements with the Allied Practices, all Contracts
by which New Image acquired the Allied Practices, all Contracts entered into in
connection with the acquisition of the Allied Practices and the execution of
Practice Management Agreements, all Contracts relating to an Allied Practice to
which New Image is a party or in which New Image is named as a third party
beneficiary, and all other Contracts relating to the conduct of the Business by
New Image and the Allied Practices;
(c) Instruments, equipment, machinery, furniture, fixtures and fittings,
tools and other similar items of tangible personal property used in the conduct
of the Business by New Image and the Allied Practices;
(d) Inventories of orthodontic and other supplies, janitorial and office
supplies, maintenance and shop supplies, and other similar items of tangible
personal property that are used by New Image and the Allied Practices in the
conduct of the Business, provided that this Agreement shall not constitute an
agreement to transfer any drugs or other controlled substances which may not
legally be transferred to Buyer;
(e) Books and records used in the conduct of the Business, including
without limitation, all credit records, payroll records, computer records,
computer programs, contracts, agreements, operating manuals, schedules of
assets, correspondence, books of account, files, papers, books and all other
public and confidential business records, whether such records are in hard copy
form or are electronically or magnetically stored, or whether such records are
located at a Facility;
(f) Licenses in favor of New Image or the Allied Practices that are used in
or necessary for the conduct of the Business, provided that the Licenses shall
not include any Licenses which by their terms may not lawfully be transferred to
Buyer;
(g) The right to receive mail and other communications addressed to New
Image or the Allied Practices insofar as such mail or other communication
relates to the operation of the Business after the Closing or the Transferred
Assets or Assumed Liabilities hereunder;
(h) Intellectual Property Assets used in the conduct of the Business by New
Image and the Allied Practices, including without limitation the name "New Image
Orthodontic Group" and all variations thereof;
(i) Warranties which New Image has received from third parties with respect
to the Transferred Assets, including, but not limited to, such warranties as are
set forth in any lease agreement, equipment purchase agreement, consulting
agreement or agreement for architectural and engineering services, all claims,
choses in action, rights of recovery, rights of set-off, rights to refunds, and
similar rights, and the like made by New Image on its behalf or on behalf of an
Allied Practice in the conduct of the Business;
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(j) All assets constituting working capital, whether cash, cash
equivalents, securities, advance payments, prepayments, prepaid expenses,
deposits or other current assets (other than cash held in the Cafeteria Plan
Account as provided in Section 1.2(b));
(k) All accounts receivable recorded by New Image, whether for its account
or the accounts of the Allied Practices, from Allied Practices, or patients or
other third parties (whether or not billed), arising from or in connection with
the conduct of the Business by New Image and the Allied Practices;
(l) All telephone numbers used in connection with the Business, including
all extensions thereto; and
(m) The goodwill of the Business.
SECTION 1.2. Excluded Assets.
The following assets of New Image (the "Excluded Assets") are not included
in the Transferred Assets:
(a) The limited liability company interests of Imagix and any Applicable
Contract exclusively relating to Imagix and its assets and liabilities,
including any guaranty by New Image of Imagix liabilities or obligations;
(b) Any (i) pension, retirement, profit-sharing, cash or deferred, deferred
compensation, stock option, phantom stock, stock appreciation rights, employee
stock ownership, severance pay, vacation, paid time off,
education-reimbursement, bonus, incentive, and other or similar plan, program or
other arrangement, (ii) cafeteria, Section 125, medical, vision, dental,
disability, death benefit, life insurance, health and/or accident plan, program
or other arrangement (including any cash held in the New Image Flexible Spending
Account #3256547094 at Bank of America in Atlanta, Georgia, to the extent such
cash is derived solely from amounts properly withheld from applicable employees'
compensation in accordance with the New Image Orthodontic Group Cafeteria Plan
(the "Cafeteria Plan") and such employees' salary reduction agreements (the
"Cafeteria Plan Account")), (iii) written or unwritten employee or other or
similar program, arrangement, agreement or understanding, whether arrived at
through collective bargaining or otherwise, and (iv) other employee benefit
plan, voluntary employees' beneficiary association, fringe benefit plan, and
other or similar plan, program or other arrangement, agreement or understanding,
including, without limitation, each "employee benefit plan," as that term is
defined in Section 3(3) of ERISA, which is currently or previously adopted,
maintained, sponsored in whole or in part, or contributed to or required to be
contributed to by New Image or any of its Subsidiaries, Allied Practices or any
ERISA Affiliate of any of such entities, or with respect to which New Image, or
any of its Subsidiaries, Allied Practices or ERISA Affiliates has any liability
or responsibility (collectively, the "Employee Plans");
(c) Any employment, consulting or similar agreement, including without
limitation the Consulting and Engagement Agreement between Stephen G. Tracey,
D.D.S., M.S., and New Image, and any collective bargaining agreements and other
Applicable Contracts to or with any labor union or other employee representative
of a group of employees;
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(d) The three promissory notes payable by George Barkett to New Image with
the original aggregate principal amount of $110,000;
(e) Any goodwill attributable solely to any of the Excluded Assets; and
(f) Those miscellaneous and sundry assets specifically listed on Schedule
1.2(f).
SECTION 1.3. Assumed Liabilities.
Subject to the terms and conditions set forth in this Agreement, at the
Closing Buyer shall assume and agree to pay or perform only the following
liabilities and obligations of New Image (the "Assumed Liabilities"):
(a) Liabilities of New Image in amounts that are reflected or fully
reserved for on the Current New Image Balance Sheet;
(b) Liabilities and obligations of New Image that are disclosed on the New
Image Disclosure Schedules as of the date of this Agreement;
(c) Liabilities of New Image which are either (i) properly classified as
Practice Business Expenses or (ii) incurred since the date of the Current New
Image Balance Sheet in the ordinary course of business in compliance with
Section 5.1;
(d) Any Transaction Costs to be paid by Buyer as provided under Section
12.3; and
(e) Those miscellaneous and sundry liabilities specifically listed on
Schedule 1.3(e);
provided, however, that the Assumed Liabilities shall not in any event include
any Excluded Liabilities.
SECTION 1.4. Excluded Liabilities.
Buyer shall not assume or be deemed to have assumed and shall not be
responsible for any of the following (the "Excluded Liabilities"):
(a) Liabilities and obligations of New Image, direct or indirect, known or
unknown, choate or inchoate, absolute or contingent, which are not included
within the Assumed Liabilities;
(b) Any of the following liabilities or obligations, regardless of whether
such liabilities or obligations would, by their terms, otherwise be included in
the Assumed Liabilities:
(i) any liability or obligation of New Image with respect to any
Excluded Asset;
(ii) any liability or obligation of New Image with respect to Income
Taxes, it being understood that Buyer shall not be deemed to be New Image's
transferee with respect to any such Income Tax liability or obligation;
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(iii) any liability or obligation of New Image arising from the breach
by New Image on or prior to the Closing Date of any term, covenant, or
provision of any Contract or License, whether or not included in the
Transferred Assets;
(iv) any liability or obligation of New Image arising from any
violation or alleged violation of any Legal Requirement;
(v) any liability or obligation of New Image incurred in connection
with its obtaining any consent, authorization or approval necessary for it
to sell, convey, assign, transfer or deliver any Transferred Asset to Buyer
hereunder or to otherwise consummate the Transaction;
(vi) any liability or obligation of New Image for Transaction Costs to
be paid by New Image under Section 12.3;
(vii) any liability or obligation of New Image pursuant to its Class A
Subordinated Zero Coupon Notes or pursuant to any other liability to the GS
Investors, including without limitation any liability for advances made to
New Image in order to permit it to pay its obligations as they become due
in the ordinary course of business (together, the "GS Liabilities");
(viii) any liability or obligation of New Image with respect to its
capital stock, including its Common Stock, Series A Preferred Stock and
Series B Preferred Stock, whether on account of Dissenting Shares, for
redemption of such stock, payment of accrued but unpaid dividends on such
stock, or pursuant to any other terms of such stock; and
(ix) any liability or obligation of New Image under any Doctor Note
for which a Replacement Note is issued by Buyer on the Closing Date
pursuant to the terms specified in Section 7.1(d); and
(c) Those miscellaneous and sundry liabilities specifically listed on
Schedule 1.4(c).
SECTION 1.5. Purchase Price.
The purchase price (the "Purchase Price") in the aggregate for all the
Transferred Assets shall consist of the following:
(a) $5,500,000 in cash (the "Cash Amount");
(b) A One Year Note issued by Parent with a principal amount equal to
$1,500,000 and a Buyer Guaranty of such One Year Note;
(c) A Three Year Note issued by Parent with a principal amount equal to
$4,750,000 and a Buyer Guaranty of such Three Year Note;
(d) A Series A Five Year Note issued by the Parent with a principal amount
equal to $2,124,444.63 and a Buyer Guaranty of such Series A Five Year Note,
provided that the principal amount of the Series A Five Year Note shall be
increased at the Closing Date by an amount equal to the Note Repayment Amount
and decreased at the Closing Date by an amount equal to any accrued
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but unpaid interest and penalty amounts due on the Doctor Notes on or prior to
the Closing Date;
(e) A Series B Five Year Note issued by Buyer with a principal amount equal
to $4,265,562.89 and a Parent Guaranty of such Series B Five Year Note; and
(f) If required pursuant to Section 7.1(d), one or more Replacement Notes,
in the principal amounts and on the terms specified in Section 7.1(d).
SECTION 1.6. Tax Allocation.
The Purchase Price plus the Assumed Liabilities constitute, for federal
income tax purposes, the total consideration paid by Purchaser for the
Transferred Assets (the "Tax Consideration"). Within sixty (60) days following
the Closing Date, Buyer shall furnish New Image an allocation of the Tax
Consideration among the Transferred Assets, which allocation shall be in
compliance with Section 1060 of the Code and consistent with Buyer's book
allocation of the Tax Consideration on its books. Buyer's allocation shall be
subject to approval by New Image, which approval shall not be unreasonably
withheld. New Image shall notify Buyer in writing of its approval or disapproval
of Buyer's allocation within fifteen (15) days after delivery of Buyer's
allocation to New Image. The parties shall work together in good faith to
resolve any disputes regarding the tax allocations as soon as reasonably
possible. Buyer and New Image agree to use the allocations prepared by Buyer and
approved by New Image in all Tax Returns and statements filed with taxing
authorities. Buyer and New Image agree to file timely the applicable Forms 8594
with their respective federal income Tax Returns for the taxable year in which
the Closing Date occurs.
ARTICLE 2
CLOSING
The closing of the Transaction (the "Closing") shall take place (i) at the
offices of Buyer specified in Section 12.1, as soon as practicable, but in any
event within three business days, after the day on which the last to be
fulfilled or waived of the conditions set forth in Article 8 (other than those
conditions that by their nature are to be fulfilled at the Closing, but subject
to the fulfillment or waiver of such conditions) shall be fulfilled or waived in
accordance with this Agreement or (ii) at such other place and time or on such
other date as the parties hereto may agree in writing (the "Closing Date"). For
all purposes of this Agreement, the Closing shall be effective as of 12:01 a.m.,
Los Angeles time, on the date immediately following the Closing Date (the
"Effective Time"). The parties shall each use all reasonable efforts to
effectuate the Transaction on or before February 18, 2000, or, if the date by
which the parties obtain all consents and approvals and take all actions listed
on Schedules 3.4, 4.4 and 7.1(a) occurs before February 18, 2000, promptly
following such earlier date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF NEW IMAGE
New Image represents and warrants to Buyer and Parent that, except as set
forth in the corresponding sections or subsections of the disclosure
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schedules delivered by New Image to Buyer (the "New Image Disclosure Schedules")
simultaneously with the execution of this Agreement:
SECTION 3.1. Corporate Existence and Power.
New Image is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Georgia. New Image has all corporate
powers and authority required to carry on its business as now conducted, to own
or use the properties and assets that it purports to own or use, and to perform
all obligations under Applicable Contracts.
SECTION 3.2. Corporate Authorization.
(a) The execution, delivery and performance by New Image of this Agreement
and the consummation by New Image of the transactions contemplated hereby are
within New Image's corporate powers and have been duly authorized by all
necessary corporate action except for the New Image Stockholder Approval (as
defined in Section 5.2(a)). Assuming due authorization, execution and delivery
of this Agreement by Buyer and Parent, this Agreement constitutes a valid and
binding agreement of New Image enforceable against New Image in accordance with
its terms, except that such enforceability may be subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws of general applicability now or hereafter in effect relating to or
affecting creditors' rights, and to general equity principles (regardless of
whether enforcement is sought in a procedure in equity or at law).
(b) New Image's Board of Directors has (i) determined that this Agreement
and the transactions contemplated hereby are in the best interests of New
Image's stockholders and declared the advisability of the Transaction, (ii)
approved this Agreement and the transactions contemplated hereby, and (iii)
resolved to recommend this Agreement and the Transaction to New Image's
stockholders.
SECTION 3.3. Governmental Authorization.
The execution, delivery and performance by New Image of this Agreement and
the consummation by New Image of the transactions contemplated hereby require no
action by or in respect of, or filing with, any Governmental Authority other
than (a) compliance with any applicable requirements of the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act") and any applicable state securities or "blue sky" laws and
regulations and (b) other actions or filings which, if not taken or made, would
not, individually or in the aggregate, have, or be expected to have, a Material
Adverse Effect.
SECTION 3.4. Non-Contravention.
Except as set forth on Schedule 3.4, the execution, delivery and
performance by New Image of this Agreement and the consummation by New Image of
the transactions contemplated hereby do not and will not (with or without notice
of lapse of time), assuming compliance with the matters referred to in Sections
3.2 and 3.3, (a) contravene or conflict with the articles of incorporation or
bylaws of New Image or any Subsidiary of New Image or any resolution adopted by
the board of directors or stockholders of New Image or any Subsidiary of New
Image, (b) contravene or conflict with or constitute a
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violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to New Image, any Subsidiary of New Image
or any Allied Practice or to which any of the assets owned or used by New Image,
any Subsidiary of New Image or any Allied Practice may be subject, (c)
constitute a breach or default under or give rise to a right of modification,
termination, cancellation or acceleration of any right or obligation of New
Image, any Subsidiary of New Image or any Allied Practice or to a loss of any
benefit to which New Image, any such Subsidiary or any Allied Practice is
entitled under any provision of any agreement, contract or other instrument
binding upon New Image, any Subsidiary of New Image or any Allied Practice or
any License held by New Image, any such Subsidiary or any Allied Practice, which
agreement, contract, instrument or License is included within the Transferred
Assets, or (d) result in the creation or imposition of any Encumbrance (other
than Permitted Encumbrances) on any asset owned or used by New Image, any
Subsidiary of New Image or any Allied Practice which asset is included within
the Transferred Assets. Except for (a) the New Image Stockholder Approval and as
set forth in Section 3.3, Schedule 3.3 and Schedule 3.4 and (b) notice to the
holders of Series A Preferred Stock and Series B Preferred Stock, neither New
Image nor any Subsidiary of New Image is or will be required to give any notice
to or obtain any consent or approval from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any the transactions contemplated by this Agreement. Except as set forth in
Schedule 3.4, neither New Image nor any Subsidiary of New Image is a party to
any agreement included within the Transferred Assets that would expressly limit
the ability of Buyer after the Effective Time to compete in or conduct any line
of business or compete with any Person or in any geographic area or during any
period of time.
SECTION 3.5. Voting Agreement Parties.
The parties to the Voting Agreements include each GS Investor, Ronald B.
Cooper, Edward P. Stahel III, Gerald L. Baxter, R. Mark Cronquist, and each
holder of New Image Series B Preferred Stock. The New Image Securities subject
to the Voting Agreements are sufficient to obtain the New Image Stockholder
Approval from each class or series of New Image Securities entitled to vote at
the New Image Stockholders Meeting.
SECTION 3.6. Subsidiaries.
The only Subsidiary of New Image is Imagix Dental LLC, a Georgia limited
liability company ("Imagix"). New Image has not had any other Subsidiaries. New
Image owns 100% of the ownership interests of Imagix. Except as set forth on
Schedule 3.6, all assets held by Imagix are primarily dedicated to the Imagix
Business conducted at the Imagix Premises and New Image is not liable for or
obligated under any liabilities or obligations that relate primarily to the
Imagix Business conducted at the Imagix Premises.
SECTION 3.7. Financial Statements.
New Image has delivered to Buyer copies of (i) the audited statements of
operations, redeemable preferred stock and stockholders' deficiency and cash
flows of New Image for the period from February 27, 1997 (inception) to December
31, 1997 and the fiscal year ended December 31, 1998 and the audited balance
sheet of New Image as of those dates, and (ii) the unaudited
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consolidated statements of operations, redeemable preferred stock and
stockholders' deficiency and cash flows of New Image for the nine-month period
ended September 30, 1999 and the unaudited consolidated balance sheet of New
Image as of that date (together with any quarterly or annual financial
statements provided or to be provided to Buyer pursuant to Section 5.6(b), the
"New Image Financial Statements"). New Image has also delivered to Buyer copies
of its unaudited monthly consolidated financial statements for the one-month
periods ended October 31, 1999 and November 30, 1999 (together with any monthly
financial statements provided to Buyer pursuant to Section 5.6(a), the "Monthly
Financial Statements"). As used in this Agreement, the term "Current New Image
Balance Sheet" refers to the balance sheet of New Image dated November 30, 1999
and attached in Schedule 3.7. The New Image Financial Statements present fairly
the financial condition and the results of operations, changes in redeemable
preferred stock and stockholders' deficiency, and cash flows of New Image as of
the respective dates of and for the periods referred to in such New Image
Financial Statements, all in accordance with generally accepted accounting
principles ("GAAP"), subject, with respect to any interim New Image Financial
Statements, to (x) normal recurring year-end adjustments that are not, in the
aggregate, material and (y) the omission of footnotes and information required
by GAAP for complete financial statements, and reflect the consistent
application of GAAP throughout the periods involved. The Monthly Financial
Statements heretofore delivered to Buyer were prepared from, and are consistent
with, the books and records of New Image.
SECTION 3.8. Absence of Certain Changes.
Since December 31, 1998, New Image and its Subsidiaries have conducted
their business in the ordinary course, consistent with past practice, there has
not been, except as provided or permitted by this Agreement and the transactions
contemplated hereby any change, event or occurrence, or to the Knowledge of New
Image, any threat thereof, which individually or in the aggregate, has had, or
could reasonably be expected to have, a Material Adverse Effect, and except as
reflected in the New Image Financial Statements delivered to Buyer prior to the
date hereof there has not been any:
(a) change in the Articles of Incorporation or Bylaws of New Image other
than as set forth in Exhibit O;
(b) adoption of a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of New Image (other than a merger or consolidation between
wholly-owned Subsidiaries of New Image or among New Image, Parent and Buyer or
as set forth on Exhibit O);
(c) issuance, sale, transfer, pledge, disposal of or encumbrance of any
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class or series of New Image, other than issuances pursuant
to the exercise of convertible securities outstanding on the date hereof or
issuances pursuant to stock based awards or options and warrants that are
outstanding on the date hereof;
(d) declaration, setting aside, making or payment of any dividend or other
distribution, payable in cash, stock, property or otherwise with
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respect to any of the capital stock of New Image or its Subsidiaries (other than
to New Image, in the case of its Subsidiaries);
(e) redemption, purchase or other acquisition, or proposal to redeem or
purchase or otherwise acquire, directly and indirectly, any shares of the
capital stock of New Image or any of its other securities (other than payments
on Doctor Notes pursuant to the terms of the Doctor Notes);
(f) capital expenditures or commitments to make capital expenditures in an
aggregate amount in excess of $10,000 for New Image and its Subsidiaries taken
as a whole (excluding amounts the depreciation of which would be properly
classified as Practice Business Expenses);
(g) adoption of or amendment to any existing plan or arrangement relating
to severance, adoption of or amendment to any plan or arrangement with any
employee or independent contractor or any Employee Plan, grant of any option or
awards pursuant to equity-based plans, or grant of any increases in compensation
(except for any such action the cost of which would be properly classified as a
Practice Business Expense);
(h) acquisition or commitment to acquire (by merger, consolidation,
purchase, acquisition or otherwise) securities, assets or property from any
other Person, except in the ordinary course of business consistent with past
practice and in an aggregate amount not in excess of $10,000 (excluding amounts
properly classified as Practice Business Expenses);
(i) sale, transfer, lease, assignment, license or other disposition of any
assets or property except in the ordinary course of business consistent with
past practice and in an aggregate amount not in excess of $10,000 (excluding
amounts properly classified as Practice Business Expenses);
(j) except for any such change which is not material or which is required
by reason of a concurrent change in GAAP, change in any method of accounting or
accounting practice used by New Image or its Subsidiaries;
(k) entry into any Practice Management Agreement or joint venture,
partnership or other similar arrangement;
(l) incurrence, assumption, guaranty or other liability in respect of any
indebtedness for money borrowed or permit any Encumbrance to be placed on any
assets, tangible or intangible, of New Image or any of its Subsidiaries, except
for Permitted Encumbrances or Encumbrances incurred in the ordinary course of
business, consistent with past practice;
(m) (i) capital investment in, (ii) loan, advance or agreement to loan or
advance to, or (iii) guarantee of indebtedness for borrowed money of, any
Person, except as required by the terms of Applicable Contracts disclosed on
Schedule 3.13(a) at or prior to the date of this Agreement;
(n) entry into, modification, amendment or grant of any waiver in respect
of any Applicable Contract of the type required to be listed on Schedule 3.13(a)
except in the ordinary course of business, consistent with past practice;
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(o) new or change in any existing material tax election, settlement of any
audit or filing of any amended Tax Returns;
(p) repayment of any GS Liabilities; or
(q) agreement or commitment to do any of the foregoing.
SECTION 3.9. Litigation.
There is no Proceeding pending against or, to the Knowledge of New Image,
threatened against or affecting, New Image or any Subsidiary of New Image or its
properties or officers or directors. To the Knowledge of New Image, there is no
Proceeding pending or threatened against or affecting any Allied Practice or
Allied Orthodontist.
SECTION 3.10. Compliance with Laws.
New Image and its Subsidiaries are and have been in material compliance
with each Legal Requirement that is or was applicable to them or to the conduct
or operation of their business or the ownership or use of any of their assets.
To the Knowledge of New Image, no event has occurred or circumstance exists that
(with or without notice or lapse of time) (a) may constitute or result in a
violation by New Image or any of its Subsidiaries of, or a failure on the part
of New Image or any of its Subsidiaries to comply with, any applicable Legal
Requirement, or (b) may give rise to any obligation on the part of New Image or
any of its Subsidiaries to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature. Neither New Image nor any of its
Subsidiaries has received any notice or other communication (whether oral or
written) from any Governmental Authority or any other Person regarding (A) any
actual, alleged, possible, or potential violation of, or failure to comply with,
any applicable Legal Requirement, or (B) any actual, alleged, possible, or
potential obligation on the part of New Image or any of its Subsidiaries to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature.
SECTION 3.11. Licenses.
Schedule 3.11 contains a complete and accurate list of each License that is
held by New Image or any of its Subsidiaries or that is required in connection
with the business of, or to any of the assets owned or used by, New Image or any
of its Subsidiaries. Each License listed or required to be listed in Schedule
3.11 is valid and in full force and effect. Except as set forth in Schedule
3.11:
(a) New Image, its Subsidiaries and, to the Knowledge of New Image, the
Allied Practices, are, and have been, in compliance with all of the terms and
requirements of each License required in connection with the business of such
Person;
(b) no event has occurred or circumstance exists that may (with or without
notice or lapse of time) (i) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any License
covered by Section 3.11(a), or (ii) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any License covered by Section 3.11(a);
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(c) neither New Image, its Subsidiaries nor, to the Knowledge of New Image,
any Allied Practice, has received any notice or other communication from any
Governmental Authority or any other Person regarding (i) any actual, alleged,
possible, or potential violation of or failure to comply with any term or
requirement of any required License or any failure to obtain any required
License, or (ii) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
License; and
(d) all applications required to have been filed for the renewal of the
Licenses covered by Section 3.11(a) have been duly filed on a timely basis with
the appropriate Governmental Authorities, and all other filings required to have
been made with respect to such Licenses have been duly made on a timely basis
with the appropriate Governmental Authorities.
SECTION 3.12. Taxes.
(a) Except as set forth on Schedule 3.12(a), New Image and its Subsidiaries
have filed or caused to be filed on a timely basis all Tax Returns that are or
were required to be filed by or with respect to any of them. Each such Tax
Return was correct and complete in all material respects when filed. New Image
and its Subsidiaries have paid, or made provision for the payment of, all Taxes
that have or may have become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment received by New Image or any of its Subsidiaries,
except such Taxes, if any, as are listed in Schedule 3.12(a) and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Current New Image Balance Sheet.
(b) Schedule 3.12(b) contains a complete and accurate list of any audits of
all Tax Returns of New Image or any of its Subsidiaries, including a reasonably
detailed description of the nature and outcome of each such audit. All
deficiencies proposed as a result of such audits have been paid, reserved
against, settled, or, as described in Schedule 3.12(b), are being contested in
good faith by appropriate Proceedings. Schedule 3.12(b) describes all
adjustments to the United States federal income Tax Returns filed by New Image
or any of its Subsidiaries for all taxable years since inception, and the
resulting deficiencies proposed by the IRS. Except as described in Schedule
3.12(b), neither New Image nor any of its Subsidiaries has given or been
requested to give waivers or extensions (or is or would be subject to a waiver
or extension given by any other Person) of any statute of limitations relating
to the payment of Taxes of New Image or any of its Subsidiaries or for which any
of them may be liable.
(c) All Taxes that New Image or any of its Subsidiaries is or was required
by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Authority or other Person.
SECTION 3.13. Contracts.
(a) Except for Contracts of the type described below which are solely
Excluded Assets or Excluded Liabilities, Schedule 3.13(a) contains a complete
and accurate list, and New Image has delivered to Buyer true and complete
copies, of:
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(i) each Applicable Contract by which New Image and/or any of its
Subsidiaries has affiliated with or agreed to provide services to an
orthodontic/dental practice ("Practice Management Agreements") and each
agreement whereby New Image and/or any of its Subsidiaries has been made a
third-party beneficiary pursuant to any Practice Management Agreement;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials by New Image or any of its Subsidiaries the
cost of which is not properly classified as Practice Business Expenses;
(iii) each Applicable Contract that involves performance of services
or delivery of goods or materials to New Image of any of its Subsidiaries
for an amount or value which is not properly classified as Practice
Business Expenses;
(iv) each Applicable Contract that was not entered into in the
ordinary course of business and that involves expenditures or receipts of
New Image or any of its Subsidiaries which are not properly classified as
Practice Business Expenses;
(v) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments which are properly classified as Practice Business
Expenses);
(vi) each licensing agreement or other Applicable Contract with
respect to Intellectual Property Assets (other than standard "shrink-wrap"
licenses included with off-the-shelf computer software and cost-free
"click-through" licenses included on Internet websites), including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of Intellectual Property
Assets;
(vii) each employment, consulting or similar agreement and any
collective bargaining agreements and other Applicable Contracts to or with
any labor union or other employee representative of a group of employees;
(viii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by New Image or any of its Subsidiaries with any other Person;
(ix) each loan agreement, mortgage, deed of trust, indenture, note and
other Applicable Contract by which New Image or any of its Subsidiaries
have borrowed or lent money, including without limitation all outstanding
Doctor Notes, other than accounts payable and accounts receivable incurred
in the ordinary course of business;
(x) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of New Image or any of
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its Subsidiaries (or any of their respective affiliates) or limit the
freedom of New Image or any of its Subsidiaries (or any of their respective
affiliates) to engage in any line of business or to compete with any
Person, regardless of whether such Applicable Contract is an Excluded Asset
or Excluded Liability;
(xi) each Applicable Contract (other than the Practice Management
Agreements) providing for commission, finders' fee, and similar payments to
or by any Person based on sales, purchases, or profits, other than direct
payments for goods or services, regardless of whether such Applicable
Contract is an Excluded Asset or Excluded Liability;
(xii) each power of attorney granted by New Image or any of its
Subsidiaries, that is currently effective and outstanding;
(xiii) each Applicable Contract entered into that contains or provides
for an express undertaking by New Image or any of its Subsidiaries to be
responsible for consequential damages;
(xiv) each Applicable Contract for capital expenditures which are not
properly classified as Practice Business Expenses;
(xv) each written warranty, guaranty, and or other similar undertaking
with respect to contractual performance extended by New Image or any of its
Subsidiaries other than in the ordinary course of business; and
(xvi) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Each contract identified or required to be identified in Schedule
3.13(a) is in full force and effect and is valid and enforceable against New
Image or its Subsidiaries, as the case may be, and, to the Knowledge of New
Image, enforceable against the other party thereto, in each case, except as
enforceability may be subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws of general applicability now or
hereafter in effect relating to or affecting creditors' rights, and to general
equity principles (regardless of whether enforcement is sought in a procedure in
equity or at law). New Image and its Subsidiaries are and have been in material
compliance with all applicable terms and requirements of each such contract. To
the Knowledge of New Image, each other Person that has or had any obligation or
liability under any contract identified or required to be identified in Schedule
3.13(a) under which New Image or any of its Subsidiaries has or had any rights
is and has been, in full compliance with all applicable terms and requirements
of such contract. To the Knowledge of New Image, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give New
Image or any of its Subsidiaries or any other Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Contract identified or
required to be identified in Schedule 3.13(a). Neither New Image nor any of its
Subsidiaries has given to or received from any other Person any notice or other
communication (whether oral or written) regarding any actual, alleged,
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possible, or potential violation or breach of, or default under, any Contract
identified or required to be identified in Schedule 3.13(a).
SECTION 3.14. Allied Practices.
Schedule 3.14 contains a complete and accurate list of each orthodontic
practice affiliated with New Image pursuant to a Practice Management Agreement
or other similar arrangement ("Allied Practices"), the name of each orthodontist
working for an Allied Practice ("Allied Orthodontists"), and each practice
location for such Allied Practices. Each Allied Orthodontist does not engage in
orthodontic practice other than for New Image, graduated from an accredited
orthodontic residency program, is fully accredited as, and has all necessary
Licenses to practice as, an orthodontist, and carries all professional
malpractice insurance required under his or her respective Practice Management
Agreement. To the Knowledge of New Image, except as set forth in Schedule 3.14,
each Allied Orthodontist is able to fulfill his or her employment commitment to
his or her Allied Practice. Schedule 3.14 identifies each "Market Profitability
Index" or other similar provision applicable to any Allied Practice. Except as
specified in Schedule 3.14, New Image has never been required to pay any amounts
under any Market Profitability Index provision, has never been requested to pay
any amount under any such provision, and has never formulated any requirements
for payments under any such provision.
SECTION 3.15. Employee Benefit Plans.
(a) Schedule 3.15(a) lists (i) each material pension, retirement,
profit-sharing, cash or deferred, deferred compensation, stock option, phantom
stock, stock appreciation rights, employee stock ownership, severance pay,
vacation, paid time off, education-reimbursement, bonus, incentive, and other or
similar plan, program or other arrangement, (ii) each material cafeteria,
Section 125, medical, vision, dental, disability, death benefit, life insurance,
health and/or accident plan, program or other arrangement, (iii) each material
written or unwritten employee or other or similar program, arrangement,
agreement or understanding, whether arrived at through collective bargaining or
otherwise, and (iv) each other material employee benefit plan, voluntary
employees' beneficiary association, fringe benefit plan, and other or similar
plan, program or other arrangement, agreement or understanding, including,
without limitation, each "employee benefit plan," as that term is defined in
Section 3(3) of ERISA, which is currently or previously adopted, maintained,
sponsored in whole or in part, or contributed to or required to be contributed
to by New Image or any ERISA Affiliate of New Image, or with respect to which
New Image or any of its Subsidiaries has any liability or responsibility
(collectively, the "Specified Employee Plans"). Any of the Specified Employee
Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, or an "employee welfare benefit plan" as that term is
defined in Section 3(1) of ERISA, is referred to herein as an "ERISA Plan."
Except as set forth in Schedule 3.15(a), New Image and each of its Subsidiaries
have made all contributions due as of the Closing under or with respect to the
Specified Employee Plans. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and all applicable regulations and
pronouncements issued in relation thereto.
(b) New Image has provided, or has caused to be provided, to Buyer (i)
current, accurate and complete copies of all documents embodying or
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relating to each Specified Employee Plan, including all amendments thereto,
written interpretations thereof and trust or funding agreements with respect
thereto; (ii) the two (2) most recent annual actuarial valuations, if any,
prepared for each Specified Employee Plan; (iii) the two (2) most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA in
connection with each Specified Employee Plan or related trust; and (iv) the most
recent determination letter received from the IRS, if any, for each Specified
Employee Plan and related trust which is intended to satisfy the requirements of
Section 401(a) of the Code; (v) if the Specified Employee Plan is funded, the
most recent annual and periodic accounting of Specified Employee Plan assets;
(vi) the most recent summary plan description together with the most recent
summary of material modifications, if any, required under ERISA with respect to
each Specified Employee Plan.
(c) All the Specified Employee Plans and any related trusts subject to
ERISA comply with and have been administered in material compliance with the
provisions of ERISA, all applicable provisions of the Code relating to
qualification and tax exemption under Code Sections 401(a) and 501(a) or
otherwise necessary to secure intended tax consequences, all applicable state or
federal securities laws and all other applicable Legal Requirements and
collective bargaining agreements, and New Image has not received any notice from
any Governmental Authority or instrumentality questioning or challenging such
compliance. Except as set forth on Schedule 3.15(c), all available governmental
approvals for the Specified Employee Plans have been obtained, and timely
registration and disclosure under applicable securities laws, and all such
governmental approvals continue in full force and effect. To the Knowledge of
New Image, no event has occurred that will or could give rise to
disqualification of any such Specified Employee Plan under Sections 401(a) or
501(a) of the Code or to a tax under Section 511 of the Code that would result
in a material liability of New Image.
(d) Neither New Image nor any administrator or fiduciary of any such
Specified Employee Plan (or agent or delegate of any of the foregoing) has
engaged in any transaction or acted or failed to act in any manner that could
subject New Image to any direct or indirect material liability (by indemnity or
otherwise) for a breach of any fiduciary, co-fiduciary or other duty under
ERISA. No oral or written representation or communication with respect to any
aspect of the Specified Employee Plans has been or will be made to employees of
New Image prior to the Closing that is not in accordance with the written or
otherwise preexisting terms and provisions of such Specified Employee Plans in
effect immediately prior to the Closing, except for any amendments or
terminations required by the terms of this Agreement. There are no material
unresolved claims or disputes under the terms of, or in connection with, the
Specified Employee Plans and no material action, legal or otherwise, has been
commenced with respect to any claim. (e) All annual reports or returns, audited
or unaudited financial statements, actuarial valuations, summary annual reports
and summary plan descriptions issued with respect to the Specified Employee
Plans are in all material respects correct and accurate as of the dates thereof;
and there have been no amendments filed to any of such reports, returns,
statements, valuations or descriptions or required to make the information
therein true and accurate.
(e) All annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports and summary plan
descriptions issued with respect to the Specified Employee Plans are in all
material respects correct and accurate as of the dates thereof; and there have
been no amendments filed to any of such reports, returns, statements,
valuations or descriptions or required to make the information therein true and
accurate.
(f) Neither New Image nor any other "party in interest" (as defined in
Section 3(14) of ERISA) or "disqualified person" (as defined in Section
4975(e)(2) of the Code) of any Specified Employee Plan has engaged in any
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"prohibited transaction" (within the meaning of Sections 503(b) or 4975(c) of
the Code or Section 406 of ERISA) with respect to such Specified Employee Plan,
for which there is no statutory, regulatory or individual or class exemption,
and which would result in a material liability by New Image. There has been no
(a) "reportable event" (as defined in Section 4043 of ERISA), or event described
in Section 4062 or Section 4063(a) of ERISA or (b) termination or partial
termination, withdrawal or partial withdrawal with respect to any of the ERISA
Plans that New Image or any ERISA Affiliate of New Image maintains or
contributes to or has maintained or contributed to or was required to maintain
or contribute to for the employees of New Image or any ERISA Affiliate of New
Image now or formerly in existence.
(g) For any ERISA Plan that is an employee pension benefit plan as defined
in ERISA Section 3(2), the fair market value of such Specified Employee Plan's
assets equals or exceeds the present value of all benefits (whether vested or
not) accrued to date by all participants in such Specified Employee Plan. For
this purpose the assumptions prescribed by the PBGC for valuing plan assets or
liabilities upon plan termination shall be applied and the term "benefits" shall
include the value of any early retirement or ancillary benefits (including
shutdown benefits) provided under any Specified Employee Plan. No accumulated
funding deficiency (as defined in ERISA Section 302 or Code Section 412),
whether or not waived, will exist with respect to any Specified Employee Plan.
(h) Neither New Image nor any ERISA Affiliate of New Image has maintained,
and neither now maintains, a Specified Employee Plan providing welfare benefits
(as defined in ERISA Section 3(1)) to employees after retirement or other
separation of service except to the extent required under Part 6 of Title I of
ERISA and Code Section 4980B.
(i) Except with respect to stock option-based compensation, restricted
stock based compensation, Severance Payments and Transition Bonuses, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee (or any spouse, dependent or other family
member of such employee) of New Image or any ERISA Affiliate of New Image to
severance pay or any payment contingent upon a change in control or ownership of
New Image, or (ii) accelerate the time of payment or vesting, or increase the
amount, of any compensation due to any such employee or former employee (or any
spouse, dependent or other family member of such employee).
(j) All Specified Employee Plans subject to Section 4980B of the Code, as
amended from time to time, or Part 6 of Title I of ERISA or both have been
maintained in good faith compliance in all material respects with the
requirements of such laws and any regulations (proposed or otherwise) issued
thereunder.
(k) No liability to the PBGC has been incurred as of the Closing by New
Image or any ERISA Affiliate of New Image, except for PBGC insurance premiums,
and all such insurance premiums incurred or accrued up to and including the
Closing have been timely paid.
(l) Neither New Image or any ERISA Affiliate of New Image maintains or has
maintained, has contributed to or has been required to contribute to, or has any
liability in connection with, a multi-employer plan (as defined in Section 3(37)
of ERISA). No amount is due or owing from New Image on account
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of a multi-employer plan (as defined in Section 3(37) of ERISA) on account of
any withdrawal therefrom.
(m) All annual reports (as described in Section 103 of ERISA) and all Forms
5500 relating to the applicable provisions of the Code or ERISA required to be
filed in connection with one or more of the Specified Employee Plans have been
timely and properly filed in accordance with applicable Legal Requirements.
SECTION 3.16. Employees.
(a) Schedule 3.16(a) contains a complete and accurate list of the following
information for each employee or director of New Image and its Subsidiaries
other than employees whose salaries, benefits and other directs are properly
classified as Practice Business Expenses, including each employee on leave of
absence or layoff status: employer; name; job title; current compensation paid
or payable and any change in compensation since December 31, 1998; vacation
accrued; and eligibility for participation in each of the Employee Plans.
(b) Neither New Image nor any of its Subsidiaries has been or is a party to
any collective bargaining or other labor contract. There has not been, there is
not presently pending or existing, and to the Knowledge of New Image there is
not threatened, (i) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (ii) any Proceeding against or affecting New Image or any of
Subsidiaries relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Authority, organizational activity, or other labor or employment dispute against
or affecting any of New Image, its Subsidiaries, or their premises, or (iii) any
application for certification of a collective bargaining agent. There is no
lockout of any employees by New Image or any of its Subsidiaries, and no such
action is contemplated by New Image or any of its Subsidiaries. New Image and
its Subsidiaries have each complied in all material respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing.
SECTION 3.17. Insurance.
Schedule 3.17 sets forth a complete and accurate list of all insurance
policies issued in favor of New Image or any of its Subsidiaries, or pursuant to
which New Image or any of its Subsidiaries are named insureds or otherwise
beneficiaries, including for each policy a brief description of coverage, the
premium amount, the amount of coverage and the dates the policy was issued and
expires. Such insurance policies (a) are valid, outstanding, and enforceable
except as may be subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws of general applicability now or
hereafter in effect relating to or affecting creditors' rights, and to general
equity principles (regardless of whether enforcement is sought in a procedure in
equity or at law), (b) were issued by insurers that are financially sound and
reputable, (c) are sufficient for compliance with all Legal Requirements and
contracts to which New Image or any of its Subsidiaries is a party or by which
any of them is bound, (d) will continue
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in full force and effect following the consummation of the transactions
contemplated by this Agreement, and (e) do not provide for any retrospective
premium adjustment or other experienced-based liability on the part of New Image
or any of its Subsidiaries. Neither New Image nor any of its Subsidiaries has
received (i) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, (ii) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect,
in each case other than policies terminated by New Image prior to the date
hereof or (iii) any notice that any insurance policy will not be renewed or that
the issuer of any policy is not willing or able to perform its obligations
thereunder. New Image and its Subsidiaries have paid all premiums due, and have
otherwise performed all of their respective obligations, under each policy to
which any of them is a party or that provides coverage to any of them or to any
of their directors, officers, employees, affiliated physicians or agents.
SECTION 3.18. Year 2000.
Except as set forth in Schedule 3.18, each hardware, software and firmware
product used by New Image or any of its Subsidiaries in their business
(collectively, the "Components") accurately process, and will continue to
process accurately, valid numerical date data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the Year 1999 and
the Year 2000, including, without limitation, leap year calculations, without a
decrease in the functionality of the Components. Without limiting the generality
of the foregoing, the Components (i) do not and will not abnormally end or
provide invalid or incorrect results as a result of date data, specifically
including date data which represents or references different centuries or more
than one century; (ii) have been designed to ensure year 2000 compatibility,
including, but not limited to, date data century recognition, calculations which
accommodate same century and multi-century formulas and date values, and date
data interface values that reflect the century; and (iii) include "Year 2000
Capabilities," meaning that the Components (a) will manage and manipulate data
involving valid numerical dates, including single century formulas and
multicentury formulas, and will not cause an abnormally ending scenario within
the application or generate incorrect values or invalid results involving such
dates; and (b) provide that all date-related data interface functionalities and
date-related data interface functionalities include the indication of century,
except as set forth on Schedule 3.18.
SECTION 3.19. Related Party Transactions.
Except as set forth in Schedule 3.19 and except for compensation and
benefits received in the ordinary course of business as an employee or director
of New Image or any of its Subsidiaries, no officer or director or, to the
Knowledge of New Image, any stockholder of New Image or any of its Subsidiaries
or any entity in which any such Person owns any beneficial interest (other than
a publicly-held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than 3% of the stock of
which is beneficially owned by all of such persons or other than the holding of
a stockholder, whose primary business is in financial investment, in (x) any
publicly traded entity or (y) any non-publicly traded entity if such holding is
in the ordinary course of the stockholder's financial services business and
without the active participation of such stockholder in such non-public entity)
has any interest
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in (i) any Transferred Asset, (ii) any Assumed Liability, or (iii) any business
or entity that competes with New Image or any of its Subsidiaries; provided,
however, that the foregoing clause (iii) shall not apply to the holding of a
stockholder, whose primary business is in financial investment, in (x) any
publicly traded entity or (y) any non-publicly traded entity if such holding is
in the ordinary course of its business and without active participation in such
non-public business or entity.
SECTION 3.20. Environmental Matters.
To the Knowledge of New Image:
(a) Each of New Image and its Subsidiaries is, and at all times has been,
in full compliance with, and has not been and is not in violation of or liable
under, any applicable Environmental Law. Neither New Image nor any other Person
for whose conduct it is or may be held to be responsible (during the time that
New Image or its Subsidiaries were responsible for the conduct of such Person)
has received any actual or threatened order, notice, or other communication from
(i) any Governmental Authority or private citizen acting in the public interest,
or (ii) the current or prior owner or operator of any Facilities, of any actual
or potential violation or failure to comply with any Environmental Law, or of
any actual or threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which New Image or any of its Subsidiaries has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
New Image, any of its Subsidiaries, or any other Person for whose conduct they
are or may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(b) There are no pending or threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any applicable Environmental Law,
in, on or under any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which New Image or any of its Subsidiaries
has or had an interest.
(c) Neither New Image nor any of its Subsidiaries believes, nor has any of
them or any other Person for whose conduct they are or may be held responsible,
(during the time that New Image or its Subsidiaries were responsible for the
conduct of such Person) received, any citation, directive, written inquiry,
written notice, Order, summons, warning, or other communication arising out of
any Hazardous Activity, Hazardous Materials, or any alleged, actual, or
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which New Image or any of its Subsidiaries had an interest, or with respect
to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by New Image,
any of its Subsidiaries, or any other Person for whose conduct they are or may
be held responsible, (during the time that New Image or its Subsidiaries were
responsible for the conduct
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of such Person) have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) Neither New Image, any of its Subsidiaries, nor any other Person for
whose conduct they are or may be held responsible, (during the time that New
Image or its Subsidiaries were responsible for the conduct of such Person) has
any Environmental, Health, and Safety Liabilities with respect to the Facilities
or with respect to any other properties and assets (whether real, personal, or
mixed) in which New Image or its Subsidiaries (or any predecessor), has or had
an interest, or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment at
the Facilities including any Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits, dumps, equipment (whether
moveable or fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other part of the Facilities
or such adjoining property, or incorporated into any structure therein or
thereon. Neither New Image, any of its Subsidiaries, nor any other Person for
whose conduct they are or may be held responsible, or any other Person, has
permitted or conducted, or is aware of, any Hazardous Activity conducted with
respect to the Facilities or any other properties or assets (whether real,
personal, or mixed) in which New Image or any of its Subsidiaries has or had an
interest except in full compliance with all applicable Environmental Laws.
(f) There has been no Release or Threat of Release, of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which New
Image or any Subsidiary has or had an interest, or any geologically or
hydrologically adjoining property, whether by New Image or any of its
Subsidiaries.
(g) New Image has delivered to Buyer true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by New Image or any of its Subsidiaries pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning compliance
by New Image or any of its Subsidiaries, or any other Person for whose conduct
they are or may be held responsible, (during the time that New Image or its
Subsidiaries were responsible for the conduct of such Person) with Environmental
Laws.
SECTION 3.21. Properties.
Schedule 3.21 contains a complete and accurate list of all real property,
leaseholds, or other interests therein used by New Image and the Allied
Practices in the conduct of the Business. New Image owns (with good and
marketable title in the case of real property, subject only to Permitted
Encumbrances and the matters permitted by the following sentence) all the
properties and assets (whether real, personal, or mixed and whether tangible or
intangible) that it purports to own located in the facilities owned or operated
by New Image or its Subsidiaries or reflected as owned in the books and records
of New Image and its Subsidiaries, including all of the properties and assets
reflected in the Current New Image Balance Sheet
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(except for personal property sold or assets used, consumed or otherwise
depleted since the date of the Current New Image Balance Sheet in the ordinary
course of business and for any property not included within the Transferred
Assets), and all of the properties and assets purchased or otherwise acquired by
New Image and its Subsidiaries since the date of the Current New Image Balance
Sheet (except for personal property acquired and sold or assets used, consumed
or otherwise depleted since the date of the Current New Image Balance Sheet in
the ordinary course of business and consistent with past practice and for any
property not included within the Transferred Assets). All properties and assets
included in the Transferred Assets are free and clear of all Encumbrances and
are not, in the case of real property, subject to any rights of way, building
use restrictions, exceptions, variances, reservations, or limitations of any
nature except, with respect to all such properties and assets, (a) mortgages or
security interests shown on the Current New Image Balance Sheet as securing
specified liabilities or obligations, with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
(b) mortgages or security interests incurred in connection with the purchase of
property or assets after the date of the Current New Image Balance Sheet (such
mortgages and security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists, and (c) Permitted
Encumbrances. All buildings, plants, and structures owned by New Image and its
Subsidiaries which are included within the Transferred Assets lie wholly within
the boundaries of the real property owned by New Image and its Subsidiaries and
do not encroach upon the property of, or otherwise materially conflict with the
property rights of, any other Person.
SECTION 3.22. Condition and Sufficiency of Assets.
The buildings, plants, structures, and equipment used by New Image and the
Allied Practices in the conduct of the Business are in good operating condition
and repair (ordinary wear and tear excepted), are adequate for the uses to which
they are being put, and, when taken together, are sufficient for the continued
conduct of the Business immediately after the Closing in substantially the same
manner as conducted during the six months prior to the Closing.
SECTION 3.23. Intellectual Property Assets.
New Image and its Subsidiaries own or have a license or otherwise have the
right to use all Intellectual Property Assets used in the Business without
violating or conflicting with the rights of others. New Image and its
Subsidiaries are not aware of any violation or infringement by a third party of
any of the Intellectual Property Assets owned or exclusively licensed by New
Image or its Subsidiaries. The business of New Image and its Subsidiaries as
currently conducted and as proposed to be conducted does not and, to the
Knowledge of New Image and its Subsidiaries, will not infringe or conflict with
the intellectual property rights of others.
SECTION 3.24. Finders' or Advisers' Fees.
There is no investment banker, financial adviser, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of New
Image which might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement.
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SECTION 3.25. State Takeover Statutes.
No "fair price," "moratorium," "control share acquisition" or other similar
state takeover statute or regulation or any applicable anti-takeover provision
in New Image's Articles of Incorporation or Bylaws is, or at the Effective time
will be, applicable to or purport to be applicable to New Image or Buyer in
connection with the Transaction or this Agreement or the transactions
contemplated hereby.
SECTION 3.26. Securities Representations.
New Image acknowledges and agrees that neither New Notes, the Buyer
Guaranty nor the Parent Guaranty have been, or will be, registered under the
Securities Act, or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering. New Image is acquiring the New Notes, the Buyer
Guaranty and the Parent Guaranty solely for its own account for investment
purposes, and not with a view to the distribution thereof (except for an
assignment to holders of New Image Securities in compliance with the terms of
such securities). New Image is a sophisticated investor with knowledge in
business and financial matters, has received and reviewed the Information
Statement and the Parent Commission Documents and has had the opportunity to
obtain additional information as desired in order to evaluate the merits and
risks of holding the New Notes, the Buyer Guaranty and the Parent Guaranty, is
able to bear the economic risk and lack of liquidity inherent in holding the New
Notes, and is an "accredited investor" as defined in Regulation D under the
Securities Act.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent jointly and severally represent and warrant to New Image
that, except as set forth in the corresponding sections or subsections of the
disclosure letter delivered by Buyer to New Image (the "Buyer Disclosure
Schedules") simultaneously with the execution of this Agreement:
SECTION 4.1. Corporate Existence and Power.
Each of Buyer and Parent is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all corporate powers and authority required to carry on its business as now
conducted. Buyer is wholly and directly owned by Parent. Buyer was formed solely
for the purpose of acquiring the Transferred Assets and assuming the Assumed
Liabilities and has not conducted any activities other than those required for
the Transaction.
SECTION 4.2. Corporate Authorization.
(a) The execution, delivery and performance by Buyer of this Agreement and
the consummation by Buyer of the transactions contemplated hereby are within
Buyer's corporate powers and have been duly authorized by all necessary
corporate action. Assuming due authorization, execution and delivery of this
Agreement by New Image, this Agreement constitutes a valid and binding agreement
of Buyer, enforceable against Buyer in accordance with
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its terms, except that such enforceability may be subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws of general applicability now or hereafter in effect relating to or
affecting creditors' rights, and to general equity principles (regardless of
whether enforcement is sought in a procedure in equity or at law).
(b) The execution, delivery and performance by Parent of this Agreement and
the consummation by Parent of the transactions contemplated hereby are within
Parent's corporate powers and have been duly authorized by all necessary
corporate action. Assuming due authorization, execution and delivery of this
Agreement by New Image, this Agreement constitutes a valid and binding agreement
of Parent, enforceable against Parent in accordance with its terms, except that
such enforceability may be subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws of general
applicability now or hereafter in effect relating to or affecting creditors'
rights, and to general equity principles (regardless of whether enforcement is
sought in a procedure in equity or at law).
(c) The Boards of Directors of Buyer and Parent, by unanimous written
consent, have each (i) determined that this Agreement and the transactions
contemplated hereby are in the best interests of Buyer and its stockholders and
declared the advisability of Transaction and (ii) approved this Agreement and
the transactions contemplated hereby.
(d) No vote or other approval of the Transaction by holders of any class of
Buyer's or Parent's capital stock is required.
SECTION 4.3. Governmental Authorization.
The execution, delivery and performance by Buyer and Parent of this
Agreement and the consummation by Buyer and Parent of the transactions
contemplated hereby require no action by or in respect of, or filing with, any
Governmental Authority, other than (a) compliance with any applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder (the "Exchange Act"), (b) compliance with
any applicable requirements of the Securities Act and any applicable state
securities or "blue sky" laws and regulations and (c) other actions or filings
which, if not taken or made, would not, individually or in the aggregate, have,
or be expected to have, a Material Adverse Effect on Parent.
SECTION 4.4. Non-Contravention.
The execution, delivery and performance by Buyer and Parent of this
Agreement and the consummation by Buyer and Parent of the transactions
contemplated hereby do not and will not (with or without notice of lapse of
time), assuming compliance with the matters referred to in Sections 4.2 and 4.3,
(a) contravene or conflict with the certificate of incorporation or bylaws of
Buyer, Parent or any Subsidiary of Buyer or Parent or any resolution adopted by
the board of directors or stockholders of Buyer, Parent or any Subsidiary of
Buyer or Parent, (b) contravene or conflict with or constitute a violation of
any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Buyer, Parent or any Subsidiary of Buyer or Parent
or to which any of the assets owned or used by Buyer, Parent or any Subsidiary
of Buyer or Parent may be subject, or (c) constitute a breach or default under
or give rise to a right of
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termination, cancellation or acceleration of any right or obligation of Buyer,
Parent or any Subsidiary of Buyer or Parent or to a loss of any benefit to which
Buyer, Parent or any such Subsidiary is entitled under any provision of any
agreement, contract or other instrument binding upon Buyer, Parent or any
Subsidiary of Buyer or Parent or any License held by Buyer, Parent or any such
Subsidiary if any such default or right results, or could be expected to result
in, the prevention of, or a material delay or material impairment of, the
ability of Buyer or Parent to consummate any of the transactions contemplated by
this Agreement.
SECTION 4.5. Commission Filings and Financial Statements.
(a) Parent has delivered or made available to New Image (i) its annual
reports on Form 10-K for its fiscal years ended December 31, 1997 and 1998, (ii)
its quarterly reports on Form 10-Q for its fiscal quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999, (iii) its proxy or information statements
relating to meetings, of, or actions taken without a meeting by, the
stockholders of Buyer held since December 31, 1998, and (iv) all of its other
reports, statements, schedules and registration statements filed with the
Securities and Exchange Commission (the "Commission") since December 31, 1998
(the documents referred to in this Section 4.5(a) being referred to collectively
as the "Parent Commission Documents"). As of its filing date, each Parent
Commission Document (i) complied as to form in all material respects with the
applicable requirements of the Exchange Act and the Securities Act and (ii) did
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each such
registration statement, as amended or supplemented, if applicable, filed by
Parent pursuant to the Securities Act as of the date such statement or amendment
became effective did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading.
(b) The audited consolidated financial statements and unaudited
consolidated interim financial statements of Parent (including any related notes
and schedules) included in the annual reports on Form 10-K and the quarterly
reports on Form 10-Q referred to in Section 4.5(a) ("Parent Financial
Statements") present fairly the financial condition and the results of
operations, changes in stockholders' equity, and cash flows of Parent as of the
respective dates of and for the periods referred to in such Parent Financial
Statements, all in accordance with GAAP, subject, with respect to any interim
Parent Financial Statements (and interim subsequent financial statements), to
the absence of footnotes and to normal recurring year-end adjustments that are
not, in the aggregate, material and reflect (or will reflect, in the case of
subsequent financial statements) the consistent application of GAAP throughout
the periods involved.
SECTION 4.6. Validity of Notes.
The Series A Five Year Notes, the Three Year Notes, the One Year Notes and
the Parent Guaranty to be issued pursuant to Section 1.5 will, when issued, be
duly and validly authorized for issuance by Parent and, when issued, will be the
legal, valid and binding obligations of Parent, enforceable in accordance with
their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting
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the rights of creditors generally and subject to general principles of equity.
The Series B Five Year Notes, the Replacement Notes and the Buyer Guaranty to be
issued pursuant to Section 1.5 will, when issued, be duly and validly authorized
for issuance by Buyer and, when issued, will be the legal, valid and binding
obligations of Buyer, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity.
SECTION 4.7. Disclosure Documents.
The document by which Parent and Buyer offer and sell the New Notes to New
Image and its securityholders, and any amendment or supplement thereto (the
"Information Statement"), will not, at the date the Information Statement is
first mailed to holders of New Image Securities or at the time such holders make
an investment decision regarding the New Notes, as the case may be, contain any
untrue statement of a material fact or omit any material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
SECTION 4.8. Absence of Certain Changes.
From September 30, 1999 through the date of this Agreement, except as
disclosed in Parent Commission Documents, Parent and its Subsidiaries have
conducted their business in the ordinary course consistent with past practice
and there has not been, except as provided or permitted by this Agreement or the
transactions contemplated hereby any change, event or occurrence, or to the
Knowledge of Parent, any threat thereof, which individually or in the aggregate,
has had, or could reasonably be expected to have, a Material Adverse Effect on
Parent.
SECTION 4.9. Litigation.
Except as disclosed in Parent Commission Documents filed prior to the date
hereof, there is no Proceeding pending against or, to the Knowledge of Parent,
threatened against or affecting, Parent, Buyer or any Subsidiary of Parent or
Buyer or their properties or officers or directors, except as would not,
individually or in the aggregate, have, or reasonably be expected to have, a
Material Adverse Effect on Parent.
SECTION 4.10. Compliance with Laws.
Buyer, Parent and their respective Subsidiaries are in compliance in all
material respects with all applicable Legal Requirements.
SECTION 4.11. Finders' or Advisers' Fees.
There is no investment banker, broker, financial adviser, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Buyer, Parent or any of their respective Subsidiaries which might be entitled to
any fee or commission in connection with the transactions contemplated by this
Agreement.
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ARTICLE 5
COVENANTS OF NEW IMAGE
New Image agrees that:
SECTION 5.1. Conduct of New Image.
Except as contemplated by this Agreement, from the date hereof until the
Closing Date, New Image shall:
(a) conduct its business in the ordinary course consistent with past
practice, including without limitation paying its obligations in accordance with
their terms and with the ordinary course of business consistent with past
practices (other than the GS Liabilities, which shall not be repaid);
(b) use its reasonable best efforts to (i) preserve intact the Business
(including its arrangements with its Allied Practices), (ii) keep available the
services of its current officers, employees, Allied Orthodontists and agents,
and (iii) maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with New Image and its Subsidiaries;
(c) confer with Buyer concerning operational matters of a material nature;
and
(d) otherwise report regularly to Buyer concerning the status of the
Business and finances of New Image and its Subsidiaries.
Except as otherwise expressly required or permitted by this Agreement,
between the date of this Agreement and the Closing Date, New Image will not,
without the prior consent of Buyer, take any affirmative action, or fail to take
any reasonable action within its control, as a result of which any of the
following is likely to occur: (i) any of the changes or events listed in Section
3.8, (ii) any action that would make any representation or warranty of New Image
hereunder inaccurate in any material respect at, or as of any time prior to, the
Effective Time, or (iii) the termination of any Applicable Contract of the type
required to be listed in Schedule 3.13(a) which would be included in the
Transferred Assets except (A) by the terms of the Applicable Contract (provided
that New Image shall use its reasonable best efforts to renew such Applicable
Contract if, in the ordinary course of business consistent with past practice,
New Image normally seeks to renew such Applicable Contracts), or (B) in the
ordinary course of business consistent with past practice. Notwithstanding the
foregoing, following February 18, 2000, if the Closing has not already occurred,
with Buyer's prior written consent (which shall not be unreasonably withheld),
New Image may take any action it believes in good faith is reasonably necessary
to preserve the Business.
SECTION 5.2. New Image Stockholder Meeting; Proxy Material.
(a) Subject to Buyer's compliance with Section 6.4 hereof, New Image shall
use its reasonable best efforts to cause a meeting of its stockholders (the "New
Image Stockholder Meeting") to be duly called and held no later than February
15, 2000 for the purpose of voting on the approval and adoption of this
Agreement and the Transaction (the "New Image Stockholder Approval").
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The Board of Directors of New Image shall recommend approval and adoption of
this Agreement and the Transaction by New Image's stockholders.
(b) Subject to Buyer's compliance with Section 6.4 hereof, New Image may
elect, in lieu of the stockholders' meeting contemplated by the first sentence
of Section 5.2(a), to seek stockholder approval of this Agreement and the
Transaction through a consent solicitation in accordance with its Articles of
Incorporation and applicable Legal Requirements. New Image will, to the extent
required by applicable Legal Requirements, mail to its shareholders an
information statement containing such information required under applicable
Legal Requirements describing the transactions contemplated by this Agreement.
SECTION 5.3. Imagix.
Prior to the Closing Date, New Image shall cause Imagix to convey to New
Image any Imagix assets which are not primarily dedicated to the business of
providing dental care to children (the "Imagix Business") at the Imagix Kids
Dental and Orthodontics center located in Alpharetta, Georgia (the "Imagix
Premises"), including any assets listed on Schedule 3.6.
SECTION 5.4. Insurance.
Prior to the Closing Date, New Image shall use its reasonable best efforts
to cause each insurance policy of the type listed or required to be listed on
Schedule 3.17 of the New Image Disclosure Letter to be amended to provide as
follows: (a) Buyer shall be a named insured under such policies, (b) Parent
shall be an additional insured under such policies, and (c) if such policies are
scheduled to expire before May 20, 2000, such policies shall be extended through
such date. Following the Effective Time, New Image shall maintain such insurance
policies in force through such date. Buyer shall reimburse New Image for the
additional costs incurred by New Image as a result of its taking the actions
specified in this Section 5.4.
SECTION 5.5. Purchase Agreement Rights.
Following the Closing, at the request of Buyer or Parent, and at the
expense of Buyer and Parent, New Image shall exercise on behalf of Buyer or
Parent any rights New Image has retained under the various agreements by which
it purchased the Allied Practices, insofar as such retained rights would have
been included in the Transferred Assets but for the failure to obtain required
Doctor Consents. In connection with any dissolution of New Image, New Image
shall obtain for the benefit of Buyer and Parent the written agreement of each
GS Investor, Ronald B. Cooper, Edward P. Stahel III, Gerald L. Baxter and R.
Mark Cronquist to take any action (at the expense of Buyer and Parent) within
their power to exercise on behalf of New Image, or permit Parent and Buyer to
exercise on behalf of New Image, any rights New Image is required to exercise on
behalf of Buyer and Parent pursuant to this Section.
SECTION 5.6 Updated Financial Statements.
(a) New Image shall deliver to Buyer Monthly Financial Statements for the
month ended December 31, 1999 promptly following their completion, and shall use
its reasonable best efforts to deliver such statements to Buyer no later than
February 4, 2000 (provided that New Image shall deliver a reasonably complete
draft of such statements to Buyer by January 28, 2000).
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If the Closing has not occurred before the twenty-third day of any subsequent
month, New Image shall provide to Buyer when completed, but no later than such
date, Monthly Financial Statements for the immediately preceding month.
(b) New Image shall deliver to Buyer annual financial statements for the
year ended December 31, 1999 promptly following their completion, and shall use
its reasonable best efforts to deliver such statements to Buyer no later than
February 15, 2000 and shall in any event deliver such statements to Buyer on or
before February 23, 2000.
SECTION 5.7 Releases.
Prior to the Closing Date, New Image shall use its reasonable best efforts
to obtain (a) an executed Directors and Officers Release from each director of
New Image as of the date hereof, Ronald B. Cooper, Edward P. Stahel III, Gerald
L. Baxter and R. Mark Cronquist, (b) an executed Investor Release from each of
the GS Investors, (c) an executed Doctor Release from each Allied Orthodontist
listed on Schedule 6.3(a) as eligible to receive stock options from Parent, and
(d) an executed Securities Representation Letter in the form attached hereto as
Exhibit N (the "Securities Representation Letter") from each holder of New Image
Series A Preferred Stock, Series B Preferred Stock and Class A Subordinated Zero
Coupon Notes. New Image shall not distribute New Notes to any Person unless and
until such Person delivers an executed Securities Representation Letter to
Buyer.
SECTION 5.8 Cafeteria Plans.
Prior to the Closing, New Image shall transfer from the Cafeteria Plan
Account to a bank account included in the Transferred Assets any cash not
derived from amounts properly withheld under the Cafeteria Plan. At least
through the last day of the fourth month following Closing, New Image shall (a)
maintain the Cafeteria Plan in accordance with its terms and applicable Legal
Requirements and (b) permit the reimbursement of claims arising thereunder on or
prior to Closing at least until such last day; provided, however, that if
written consent of Buyer is obtained, New Image may terminate the Cafeteria Plan
in accordance with its terms and applicable Legal Requirements and distribute
the amounts constituting the Cafeteria Plan Account to the participants and/or
beneficiaries under such plan.
ARTICLE 6
COVENANTS OF BUYER AND PARENT
Buyer and Parent agree that:
SECTION 6.1. Conduct of Buyer and Parent.
Except with the prior written consent of New Image or as contemplated by
this Agreement, from the date hereof until the Closing Date, neither Buyer nor
Parent will:
(a) adopt a plan or agreement of complete or partial liquidation or
dissolution;
(b) take any action that would make any representation or warranty of Buyer
or Parent hereunder inaccurate in any material respect at, or as of any time
prior to, the Closing Date; or
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(c) agree or commit to do any of the foregoing.
SECTION 6.2. [Reserved].
SECTION 6.3. Stock Options and Employee Benefits.
(a) Parent will grant each of the Allied Orthodontists listed on Schedule
6.3(a) the number of Parent stock options allocated in such Schedule to such
individual, on the principal terms specified on Schedule 6.3(a), subject, in the
case of each Allied Orthodontist, to the prior receipt by Buyer from such Allied
Orthodontist of (i) a Doctor Release (which, for John R. Smith, D.D.S., P.A. and
James J. Hilgers, D.D.S., M.S., P.C., must contain a waiver of their rights to
terminate their Practice Management Agreements as a result of the Transaction)
and (ii) each Doctor Consent and any other consent specified in Schedule 3.4 and
Schedule 7.1(a) which is required from such Allied Orthodontist or his or her
Allied Practice or affiliates. Schedule 6.3(a) will reflect term, vesting and
principal terms. Parent shall take all corporate action necessary to approve
such option grants, reserve a sufficient number of shares of Parent Class A
common stock, par value $.001 per share (the "Parent Common Stock"), for
issuance pursuant to the exercise of such Parent stock options and enter into
option agreements evidencing such grants.
(b) Buyer shall offer to hire at the Closing each of the employees of New
Image, other than employees listed on Schedule 6.3(f) as being eligible to
receive a Severance Payment but not a Transition Bonus. Any offer of employment
by Buyer shall be to perform comparable services at substantially the same
salary and wages and substantially the same terms and conditions as in effect
immediately before Closing. Employees who accept employment with Buyer pursuant
to this Section 6.3(b) are referred to herein as "Hired Employees". Buyer shall
allow those Hired Employees that are needed by New Image to assist in the
orderly winding up of New Image's affairs to be allowed to do so, provided such
assistance shall not significantly interfere with the Hired Employees'
obligations as employees of Buyer.
(c) Prior to the Closing Date, New Image shall have delivered to Buyer, for
information purposes only, forms of any letters or other written communications
which New Image shall distribute generally to such employees notifying them of
their rights in respect of their cessation of active participation in the
Employee Plans. Until December 31, 2000, Buyer shall make available to the Hired
Employees employee benefits (other than salary, incentive compensation, stock
compensation, stock options or restricted stock awards) as are made available
under employee benefit plans, programs, policies or arrangements maintained by
Buyer or any Subsidiary of Buyer no less favorable than those made available to
employees of Buyer and its affiliates in positions comparable to positions held
by Hired Employees with Buyer or its Subsidiaries from time to time after the
Effective Time; provided that no Hired Employee shall be entitled to any
benefits upon the termination of the Hired Employee's employment with Buyer
other than as may be required by applicable Legal Requirements; provided,
further, that Buyer shall not be required to provide any right of participation
in Buyer's 401(k) plan to the Hired Employees who are highly compensated
employees (within the meaning of Code section 414(q)) until such time as Buyer
provides a right of participation in its 401(k) plan to the highly compensated
employees of Buyer or any Subsidiary of Buyer (and Buyer shall use its
reasonable best efforts to provide Hired Employees who are highly compensated
employees a right of
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participation in the Buyer's 401(k) plan on September 1, 2000); provided,
further, that Buyer shall give full credit to Hired Employees for time properly
accrued under the New Image vacation plan, paid time off plan and sick leave
plan as of the Closing and permit eligible Hired Employees to continue to accrue
additional time in accordance with the terms of Buyer's similar plans (subject
to the overall limits in Buyer's plans), it being understood that nothing in
this proviso is intended to diminish the right of any Hired Employee to receive
payment for any vested benefit under such employee's Transition Agreement and
Release; and provided, further, that, as contemplated by Section 7.9, in the
event Buyer and New Image are not able to, economically and practicably, enable
Buyer to continue to make available New Image's health insurance plan or a
similar plan to Hired Employees after the Closing, Buyer shall not be obligated
under this Section 6.3 to provide health insurance benefits to any Hired
Employees unless and until Buyer obtains a general health insurance policy for
the Hired Employees.
(d) To the extent applicable employee benefits maintained by Buyer or any
Subsidiary of Buyer are required to be made available under Section 6.3(c),
Buyer will give Hired Employees full credit for purposes of eligibility, vesting
and benefit accrual under any employee benefit plans or arrangements maintained
by Buyer or any Subsidiary of Buyer for such Hired Employees' service prior to
the Effective Time with New Image or any Subsidiary of New Image to the same
extent recognized by New Image immediately prior to the date of this Agreement.
(e) To the extent Buyer provides its welfare benefit plans to the Hired
Employees, Buyer will (i) waive all limitations as to preexisting conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Hired Employees under any welfare benefit plans
that such employees may be eligible to participate in after the Effective Time,
and (ii) provide each Hired Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time; provided that
nothing in this Section 6.3(e) shall require Buyer to provide the Hired
Employees with greater benefits than the Hired Employees would have received
under any welfare plans had the Transaction not occurred; and provided further,
this Section 6.3(e) shall not be effective after December 31, 2000.
(f) In consideration for reasonable transition assistance anticipated to be
provided after the Closing by certain Hired Employees to Buyer, Buyer agrees to
pay to each of the individuals listed on Schedule 6.3(f) who accept offers of
employment from Buyer a bonus (the "Transition Bonus") and a severance payment
(the "Severance Payment") for the amount specified on Schedule 6.3(f); provided,
however, that the Transition Bonus shall be reduced on a pro rata basis as
provided on Schedule 6.3(f) to the extent the employee's employment is
terminated by Buyer prior to the date specified for such employee in Schedule
6.3(f) and as a condition to receiving any payments the employee must execute a
standard employee release agreement substantially in the form of Exhibit B (the
"Transition Agreement and Release") on or prior to the receipt of any such
payment.
(g) Buyer shall provide each of the New Image employees listed on Schedule
6.3(f) as being eligible for a Transition Bonus at least one (1) month prior
notice if the employee accepts Buyer's employment offer and then
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Buyer terminates such Hired Employee's employment prior to the end of the
transition period specified for such Hired Employee on Schedule 6.3(f).
(h) At the Effective Time and subject to receipt by New Image and Buyer of
a standard employee release agreement substantially in the form of Exhibit C
(the "Employee Release"), Buyer shall pay, on behalf of New Image, the severance
costs to the New Image employees set forth on Schedule 6.3(f) who are either (i)
entitled to receive a Severance Payment but are not entitled to receive any
Transition Bonus or (ii) are entitled to receive a Severance Payment and a
Transition Bonus, but forfeit their right to receive any Transition Bonus
because they fail to accept Buyer's offer of employment.
(i) Nothing in this Agreement (i) shall create any obligation on the part
of Buyer to any employee who primarily works at the Imagix Premises, and (ii)
shall give any employees of New Image or its Subsidiaries (including the Hired
Employees) any third party beneficiary rights under this Agreement; provided,
however, that each Hired Employee listed on Schedule 6.3(f) as being eligible
for a Transition Bonus is entitled to receive at least one (1) month prior
notice by Buyer if Buyer decides to terminate such employee's employment prior
to the end of the transition period specified for such employee in Schedule
6.3(f).
(j) Notwithstanding the foregoing, Buyer shall not be obligated to offer
employment or provide any benefits to, and the term "Hired Employee" shall not
include, any New Image employee who, following the Closing, is employed directly
by an Allied Practice pursuant to Item 2 of Schedule 7.1(a). Buyer may, at its
option, provide the benefits required by this Section 6.3 through one or more of
Buyer's affiliates.
SECTION 6.4. Preparation of Information Statement.
Buyer shall prepare the Information Statement not later than January 29,
2000 and (a) if on or after the date Buyer completes the Information Statement
New Image is mailing materials to its stockholders in connection with the New
Image Stockholders Meeting, provide New Image with sufficient copies of the
Information Statement so that New Image may mail one copy to each New Image
stockholder, or (b) if New Image is not mailing materials to its stockholders,
Buyer shall mail one copy of the Information Statement to each holder of New
Image Securities at the address for such holder provided by New Image to Buyer.
SECTION 6.5. Registration of Shares Subject to Stock Options.
Parent will file as soon as reasonably practicable after the Effective Date
a registration statement on Form S-8 under the Securities Act covering the
shares of Parent Common Stock issuable upon exercise of the options to purchase
Parent Common Stock granted pursuant to Section 6.3(a) (to the extent such
securities have not been previously registered for issuance pursuant to another
Form S-8), and will use its reasonable best efforts to cause such registration
statement to become effective as soon thereafter as practicable and to maintain
such registration statement in effect until the exercise or expiration of each
such option.
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SECTION 6.6. Nomination of Board Member.
At Parent's first meeting of stockholders following the Effective Time,
Parent shall cause one Allied Orthodontist to be nominated to Parent's Board of
Directors. Parent shall use its best efforts to cause such nominee to be elected
and serve at least one term on Parent's Board of Directors, subject to the
provisions of Parent's Certificate of Incorporation and Bylaws.
SECTION 6.7. Senior Note Amendments.
At the Effective Time, Buyer shall offer to amend (i) the Promissory Note
payable from New Image to Douglas R. Crosby, dated August 7, 1997, in the
original principal amount of $1,300,000 and (ii) the Promissory Note Payable
from New Image to Stephen G. Tracey, DDS MD, dated November 1, 1998, in the
original principal amount of $1,015,000, such amendments to be substantially in
accordance with Schedules 6.7(i) and 6.7(ii), respectively.
ARTICLE 7
COVENANTS OF BUYER, PARENT AND NEW IMAGE
The parties hereto agree that:
SECTION 7.1. Reasonable Best Efforts.
(a) Subject to Section 7.1(f), New Image, Parent and Buyer shall each
cooperate with the other and use (and shall cause their respective Subsidiaries
to use) their respective reasonable best efforts to promptly (i) take or cause
to be taken all necessary actions, and do or cause to be done all things,
necessary, proper or advisable under this Agreement and applicable laws to
consummate and make effective the Transaction and the other transactions
contemplated by this Agreement to be consummated at or before the Closing Date
as soon as practicable, including, without limitation, preparing and filing
promptly and fully all documentation to effect all necessary filings, notices,
petitions, statements, registrations, submissions of information, applications
and other documents, and (ii) obtain all approvals, consents, registrations,
permits, authorizations and other confirmations required to be obtained from any
third party necessary, proper or advisable to consummate the Transaction and the
other transactions contemplated by this Agreement, including all consents
identified or required to be identified on Schedule 3.4 to the New Image
Disclosure Letter (including any consents identified as immaterial on such
Schedule as of the date hereof) and Schedule 4.4 of Buyer's Disclosure Schedules
and any actions required of New Image specified on Schedule 7.1(a).
(b) Subject to applicable laws relating to the exchange of information, New
Image and Buyer shall have the right to review in advance, and to the extent
practicable each will consult the other on, all the information relating to New
Image and its Subsidiaries, or Buyer and its Subsidiaries, as the case may be,
that appears in any filing made with, or written materials submitted to, any
third party and/or any governmental authority in connection with the Transaction
and the other transactions contemplated by this Agreement. New Image shall not
utilize or accept any form of consent or assignment with respect to any of the
Transferred Assets or Assumed Liabilities unless such form is materially
consistent with the applicable form included in Exhibit E-1 or E-2 to this
Agreement or is otherwise approved in advance by Buyer.
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(c) In the event a landlord under any real property lease requires Parent
to guaranty the obligations of Buyer under the lease as a condition to
consenting to the assignment from New Image to Buyer of the lease, Parent shall
agree to pay the rental and other payment obligations of Buyer to the landlord
under the lease if Buyer shall fail to make any such payment in breach of the
lease, provided that Parent shall have no obligation under this paragraph (c)
unless (i) New Image has first used its reasonable best efforts to obtain the
required consent without the necessity of a lease payment guaranty from Parent
and (ii) New Image has not offered Parent's lease payment guaranty to the
landlord without first consulting with Parent, and provided, further, that
Parent shall not be obligated to agree to give a lease payment guarantee for
more than ten (10) real property leases. New Image shall not offer a Parent
guaranty to any other consenting party in connection with obtaining any other
consent required in connection with this Agreement and the transactions
contemplated hereby, and Parent shall not be otherwise obligated to offer its
guaranty.
(d) New Image shall use its reasonable best efforts to obtain prior to the
Closing from each holder of a Doctor Note an executed consent for the assumption
of such Doctor Note by Buyer substantially in the form attached hereto as
Exhibit E-2 (the "Doctor Consent"). If, after using its reasonable best efforts,
New Image is not able to obtain prior to the Closing Date a Doctor Consent for
the assumption by Buyer of any of the unsecured Doctor Notes, then: (i) each
such Doctor Note shall be retained by New Image and treated as an Excluded
Liability in the Transaction and (ii) at the Effective Time Buyer shall issue a
note (the "Replacement Note") to New Image having the same terms as the excluded
Doctor Note as of the Effective Time.
(e) In connection with obtaining required Doctor Consents for the
assumption by Buyer of secured Doctor Notes, Buyer shall permit each holder of
secured Doctor Notes to retain any security interest held by such holder in the
Transferred Assets to secure payment of the Doctor Note, provided that Buyer
shall be permitted to subordinate such security interests to any security
interests in such Transferred Assets requested by Buyer's commercial lenders.
(f) Notwithstanding anything else contained herein the provisions of this
Section 7.1 shall not be construed to require either party to undertake any
efforts or to take any action if such efforts or action would, or would
reasonably be expected to, result in a Substantial Detriment. "Substantial
Detriment" shall mean changes or effects which would, individually or in the
aggregate, result in, or be reasonably likely to result in, there being a
substantial and detrimental effect on the financial condition, business,
liabilities, assets, properties or results of operations of New Image and its
Subsidiaries or Parent and its Subsidiaries, taken as a whole, at or after the
Effective Time.
SECTION 7.2. Certain Filings.
New Image and Buyer shall cooperate with one another (i) in determining
whether any action by or in respect of, or filing with, any governmental body,
agency or official, or authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any contracts,
in connection with the consummation of the transactions contemplated by this
Agreement and (ii) in seeking any such actions, consents, approvals or waivers
or making any such filings, furnishing
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information required in connection therewith or with the Information Statement
and seeking timely to obtain any such actions, consents, approvals or waivers.
SECTION 7.3. Access to Information.
(a) From the date hereof until the Effective Time, to the extent permitted
by applicable law, New Image and Parent will upon reasonable request give the
other party, its counsel, financial advisers, auditors and other authorized
representatives reasonable access to the offices, properties, books and records
of such party and its Subsidiaries during normal business hours, furnish to the
other party, its counsel, financial advisers, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and will instruct its own employees, counsel and
financial advisers to cooperate with the other party in its investigation of the
business of New Image or Parent, as the case may be, provided that no
investigation of the other party's business shall affect any representation or
warranty given by either party hereunder.
(b) In addition to the information required to be provided in paragraph (a)
above, New Image shall permit Parent and its representatives to contact and
communicate with New Image's employees, Allied Orthodontists, vendors,
customers, creditors and other persons having business dealings with New Image,
it being understood that any such contact shall be conducted in such a manner as
not to interfere unduly with the normal conduct of New Image's business.
Notwithstanding the foregoing, New Image shall have a right to participate in
any discussion between a representative of Parent and an Allied Orthodontist.
(c) All information obtained by Parent or New Image pursuant to this
Section 7.3 shall be kept confidential in accordance with, and shall otherwise
be subject to the terms of, the Confidentiality Agreement dated March 5, 1999
between Parent and New Image (the "Confidentiality Agreement").
SECTION 7.4. Public Announcements.
Parent and New Image will consult with each other before issuing any press
release or making any public statement with respect to this Agreement and the
transactions contemplated hereby and shall not issue any press release or make
any public statement without the prior consent of the other party, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, any press
release or public statement as may be required by applicable law or any listing
agreement with any national securities exchange may be issued prior to such
consultation and without such consent, if the party making the release or
statement has used its reasonable best efforts to consult with the other party.
SECTION 7.5. Further Assurances.
At and after the Effective Time, New Image and Buyer shall each execute and
deliver any deeds, bills of sale, assignments or assurances and take any other
actions and do any other things reasonably necessary to vest, perfect or confirm
of record or otherwise in Buyer any and all right, title and interest in, to and
under any of the Transferred Assets, any and all
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liabilities or obligations under any of the Assumed Liabilities, or otherwise to
effect the intent of the Transaction to transfer the Business to Buyer.
SECTION 7.6. Notices of Certain Events.
(a) Each of New Image and Parent shall promptly notify the other party of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement; and
(ii) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement.
(b) New Image and Parent shall promptly notify the other party of any
Proceedings commenced or, to the best of its Knowledge, threatened against,
relating to or involving or otherwise affecting such party or any of its
Subsidiaries which relate to the consummation of the transactions contemplated
by this Agreement.
SECTION 7.7. No Solicitation.
(a) New Image will not, and will direct and use its reasonable best efforts
to cause its Subsidiaries and its and their respective officers, directors,
employees, investment bankers, consultants, attorneys, accountants, agents and
other representatives not to, directly or indirectly, take any action to
solicit, initiate, encourage or facilitate the making of any Acquisition
Proposal with respect to it or its Subsidiaries or any inquiry with respect
thereto or engage in discussions or negotiations with any Person with respect
thereto, or disclose any nonpublic information or afford access to properties,
books or records to, any Person that has made, or to such party's knowledge, is
considering making, any Acquisition Proposal with respect to it or its
Subsidiaries.
(b) New Image will (i) promptly (and in no event later than 24 hours after
receipt of any Acquisition Proposal) notify (which notice shall be provided
orally and in writing and shall identify the Person making such Acquisition
Proposal and set forth the material terms thereof) Parent after receipt of any
Acquisition Proposal, any indication of which such party has knowledge that any
Person is considering making an Acquisition Proposal, or any request for
nonpublic information relating to New Image or any Subsidiary of New Image or
for access to the properties, books or records of such party or any Subsidiary
by any Person that has made, or to New Image's knowledge may be considering
making, an Acquisition Proposal, and (ii) will keep Parent informed of the
status and material terms of (including all changes to the status or material
terms of) any such Acquisition Proposal or request. New Image (i) shall, and
shall cause its Subsidiaries to, immediately cease and cause to be terminated
and shall use reasonable best efforts to cause its and their officers,
directors, employees, investment bankers, consultants, attorneys, accountants,
agents and other representatives to, immediately cease and cause to be
terminated, all discussions and negotiations, if any, that have taken place
prior to the date hereof with any Persons with respect to any Acquisition
Proposal and (ii) shall promptly request each Person, if any, that has executed
a confidentiality agreement within the 12 months prior
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to the date hereof in connection with its consideration of any Acquisition
Proposal to return or destroy all confidential information heretofore furnished
to such Person by or on behalf of it or any of its Subsidiaries.
(c) For purposes of this Agreement, "Acquisition Proposal" means any offer
or proposal for, or any indication of interest in, any (i) direct or indirect
acquisition or purchase of a business or asset of New Image or any of its
Subsidiaries that constitutes 20% or more of the net revenues, net income or
assets of New Image and its Subsidiaries, taken as a whole, (ii) direct or
indirect acquisition or purchase of 20% or more of any class of equity
securities of New Image or any of its Subsidiaries whose business constitutes
20% or more of the net revenues, net income or assets of New Image and its
Subsidiaries, taken as a whole, (iii) tender offer or exchange offer that, if
consummated, would result in any Person beneficially owning 20% or more of any
class of equity securities of New Image or any of its Subsidiaries whose
business constitutes 20% or more the net revenues, net income or assets of New
Image and its Subsidiaries, taken as a whole, or (iv) merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving New Image or any of its Subsidiaries whose business
constitutes 20% or more of the net revenue, net income or assets of New Image
and its Subsidiaries, taken as a whole, other than the transactions contemplated
by this Agreement.
SECTION 7.8. Takeover Statutes.
If any anti-takeover or similar statute or regulation may become applicable
to the transactions contemplated hereby, each of the parties and its Board of
Directors shall grant such approvals and take all such actions as are legally
permissible so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of any such statute or regulation on the
transactions contemplated hereby.
SECTION 7.9. Insurance.
(a) Between the date hereof and the Closing Date, New Image and Buyer shall
each cooperate and use their reasonable best efforts to enable Buyer,
economically and practicably, to make available to the Hired Employees a program
of health care benefits under a health insurance plan the same as or similar to
that currently offered by New Image to its employees, subject, however, to
Section 6.3(c). If New Image and Buyer are not successful in doing so by the
Closing, then Buyer shall continue to use its reasonable best efforts to obtain
such coverage for the Hired Employees through the earlier of (a) December 31,
2000 or (b) the date on which Buyer makes available to each Hired Employee then
employed by Buyer access to other comparable health insurance. Nothing in this
Agreement shall limit New Image's, Parent's or Buyer's COBRA obligations under
Code Section 4980B and Part 6 of Title I of ERISA with respect to the Hired
Employees or any other person.
(b) Between the date hereof and the Closing Date, New Image and Buyer shall
each cooperate and use their reasonable best efforts to enable New Image to
obtain for its officers and directors policies of directors and officers
liability insurance and fiduciary liability insurance with respect to claims
arising from or relating to actions or omissions, or alleged actions or
omissions, occurring on or prior to the Effective Time, whether by maintaining
New Image's existing arrangements or substituting for such
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policies directors and officers liability insurance and fiduciary liability
insurance policies with reputable and financially sound carriers providing for
no less favorable coverage. The term of such policies shall be for six years
following the Closing Date. The Buyer shall reimburse New Image for the premium
cost of such policies, provided that Buyer will not be obligated for annual
premium payments with respect to such policies of insurance to the extent such
premiums exceed 300 percent of the annual premiums paid by New Image as of the
date of this Agreement. If the annual premium costs necessary to maintain such
insurance coverage exceed the foregoing amount, the parties will work together
to obtain for New Image the most advantageous policies of directors and officers
liability insurance and fiduciary liability insurance obtainable for an annual
premium equal to the foregoing amount.
SECTION 7.10. Post-Closing Cooperation.
Following the Closing, New Image, Parent and Buyer shall each permit the
other and its representatives (which, in the case of New Image, shall include
the GS Investors), reasonable access to the books and records (the "Records")
included in the Transferred Assets, in the case of Buyer and Parent, and the
Excluded Assets, in the case of New Image, for any appropriate purpose,
including without limitation for use in preparation of tax returns or other
filings with Governmental Authorities or contesting third party claims. To the
extent reasonably necessary, each party and its representatives shall be
permitted to make copies (hard copy, electronic or magnetic) of the Records.
Each party agrees not to destroy, damage or otherwise dispose of any Records for
so long as the contents thereof may become material in the administration of any
matter relating to taxes, employee benefits, or reasonably foreseeable third
party claims, but in any event until six years after the Effective Time. If,
prior to the expiration of such six year period, a party reasonably determines
that any Records are no longer material in the administration of any matter
referenced hereunder, such Party may dispose of such Records upon thirty (30)
days prior notice to the other party (Parent and Buyer being one party for these
purposes). Such notice shall include a list of Records to be disposed of and
shall generally describe the nature of such Records. The other party shall then
have the opportunity, at its sole costs and expense, to copy or remove, within
such thirty (30) day period, all or any part of such Records.
SECTION 7.11. Non-Solicitation.
Parent agrees that until the earlier of (x) a period of two years from the
date of this Agreement, or (y) the Closing, Parent and its affiliates (as
defined in Regulation D under the Securities Act) will not, directly or
indirectly, (a) solicit or hire or seek affiliation with any Allied Orthodontist
while such Allied Orthodontist is a party to a Practice Management Agreement
with New Image or (b) induce any Allied Orthodontist to terminate or breach his
Practice Management Agreement with New Image.
ARTICLE 8
CONDITIONS TO THE TRANSACTION
SECTION 8.1. Conditions to the Obligations of the Parties.
The obligations of New Image, Buyer and Parent to consummate the
Transaction are subject to the satisfaction (or, to the extent legally
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permissible, mutual waiver by New Image, Buyer and Parent) of the following
conditions:
(a) The New Image Stockholder Approval shall have been obtained.
(b) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit or enjoin the consummation of the
Transaction.
(c) All material necessary approvals and permits under state securities or
"blue sky" laws relating to the issuance of New Notes pursuant to the
Transaction shall have been obtained.
(d) The consent identified on Schedule 4.4 of the Buyer Disclosure
Schedules must have been obtained and must be in full force and effect.
SECTION 8.2. Conditions to the Obligations of Buyer and Parent.
The obligations of Buyer and Parent to consummate the Transaction are
subject to the satisfaction (or, to the extent legally permissible, waiver by
Buyer and Parent) of the following further conditions:
(a) Each of the agreements of New Image to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in all
material respects, and New Image shall have performed, in all material respects,
all of the acts required to be performed by it at or prior to the Closing Date
by the terms hereof.
(b) The representations and warranties of New Image contained in this
Agreement shall have been true and correct in all material respects as of the
date of this Agreement, except to the extent such representations and warranties
expressly relate solely to an earlier date (in which case such representations
and warranties shall be true and correct in all material respects as of such
earlier date), and, except as expressly contemplated by this Agreement, shall be
true and correct in all material respects as of the Closing Date as if made at
the Closing Date, except to the extent such representations and warranties
expressly relate solely to a date earlier than the date of this Agreement (in
which case such representations and warranties shall be true and correct in all
material respects as of such earlier date), without giving any effect to any
supplement to the New Image Disclosure Schedules.
(c) Buyer shall have been furnished with a certificate, executed by a duly
authorized officer of New Image, dated the Closing Date, certifying in such
detail as Buyer may reasonably request as to the fulfillment of the conditions
in this Section 8.2.
(d) The Dissenting Shares shall constitute less than five percent (5%) of
the outstanding shares of any class or series of New Image Securities.
(e) From the date of this Agreement through the Closing Date, there shall
not have occurred any change or series of changes which, individually or taken
together, could reasonably be expected to result in a Material Adverse Effect.
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(f) New Image shall have obtained each consent and approval required in
connection with the execution and delivery by New Image of this Agreement or the
consummation or performance by New Image of any the transactions contemplated by
this Agreement, including each consent and approval listed or required to be
listed on Schedule 3.4 of the New Image Disclosure Schedules (other than
consents identified as immaterial on such Schedule as of the date hereof, which
New Image shall nevertheless use its reasonable best efforts to obtain) and each
consent, approval and action specified on Schedule 7.1(a), in compliance with
the requirements of Section 7.1, provided that Parent shall be deemed to have
waived noncompliance of this condition by New Image with respect to the failure
by New Image to obtain any such consent or approval or take any action if Parent
shall have failed in any material respect to comply with its obligations
pursuant to Section 7.1 with respect to such consent, approval or action.
(g) Buyer shall have received the following documents:
(i) A Directors and Officers Release duly executed by each of the
Persons specified in Section 5.7(a) and an Investor Release duly executed
by each of the Persons specified in Section 5.7(b);
(ii) A certificate, dated not more than five days prior to the Closing
Date, of the Secretary of State of the State of Georgia confirming the good
standing of New Image as a Georgia corporation and the payment to date of
all required franchise and other taxes;
(iii) A Bill of Sale, Assignment and Assumption Agreement in
substantially the form of Exhibit D executed by New Image;
(iv) Instruments of transfer, sufficient to transfer personal property
interests of New Image that are included in the Transferred Assets but not
otherwise transferred by the Bill of Sale and Assignment referred to in
clause (iii) above, executed by New Image in the form customarily used in
commercial transactions in the areas in which such other personal property
of New Image is located;
(v) Such other instruments of transfer, executed by New Image,
necessary to transfer to and vest in Buyer all of New Image's right, title
and interest in and to the Transferred Assets; and
(vi) An Indemnification Agreement executed by each GS Investor as of
the date hereof, which shall be in full force and effect.
SECTION 8.3. Conditions to the Obligations of New Image.
The obligation of New Image to consummate the Transaction is subject to the
satisfaction (or, to the extent legally permissible, waiver by New Image) of the
following further conditions:
(a) Each of the agreements of Buyer and Parent to be performed at or prior
to the Closing Date pursuant to the terms hereof shall have been duly performed
in all material respects, and Buyer and Parent shall have performed, in all
material respects, all of the acts required to be performed by it at or prior to
the Closing Date by the terms hereof.
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(b) The representations and warranties of Buyer and Parent contained in
this Agreement shall have been true and correct in all material respects as of
the date of this Agreement, except to the extent such representations and
warranties expressly relate solely to an earlier date (in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date), and, except as expressly contemplated by this
Agreement, shall be true and correct in all material respects as of the Closing
Date as if made at the Closing Date, except to the extent such representations
and warranties expressly relate solely to a date earlier than the date of this
Agreement (in which case such representations and warranties shall be true and
correct in all material respects as of such earlier date), without giving any
effect to any supplement to the Buyer Disclosure Schedules.
(c) New Image shall have been furnished with a certificate, executed by a
duly authorized officer of Buyer and Parent, dated the Closing Date, certifying
in such detail as New Image may reasonably request as to the fulfillment of the
conditions of this Section 8.3.
(d) New Image shall have received payment of the Cash Amount.
(e) New Image shall have received the following documents:
(i) A One Year Note, a Three Year Note and a Series B Five Year Note,
each for the respective principal amounts specified in Section 1.5 and duly
executed by Parent;
(ii) A Series A Five Year Note for the principal amount specified in
Section 1.5, duly executed by Buyer;
(iii) The Parent Guaranty, duly executed by Parent, and the Buyer
Guaranty, duly executed by Buyer;
(iv) A certificate, dated not more than five days prior to the Closing
Date, of the Secretary of State of the State of Delaware confirming the
good standing of Buyer as a Delaware corporation and the payment to date of
all required franchise and other taxes; and
(vi) A Bill of Sale, Assignment and Assumption Agreement in
substantially the form of Exhibit D executed by Buyer.
(f) The Dissenting Shares shall constitute less than five percent (5%) of
the outstanding shares of any class or series of New Image Securities, provided
that New Image shall be deemed to have waived this condition if either (i) New
Image fails to comply with its obligations under Section 5.2 or (ii) any party
to a Voting Agreement (other than Buyer) fails to comply with its obligations
thereunder.
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ARTICLE 9
TERMINATION
SECTION 9.1. Termination.
(a) This Agreement may be terminated and the Transaction may be abandoned
at any time prior to the Closing Date (notwithstanding the obtaining of New
Image Stockholder Approval):
(i) by mutual written consent of New Image and Buyer;
(ii) by either New Image or Buyer,
(A) if the Transaction has not been consummated on or before
February 29, 2000 (the "End Date"); provided, however, that the right
to terminate this Agreement under this Section 9.1(a)(ii)(A) shall not
be available to any party whose failure to fulfill in any material
respect any obligation under this Agreement has caused or resulted in
the failure of the Closing Date to occur on or before the End Date;
(B) if New Image Stockholder Approval shall not have been
obtained by reason of the failure to obtain the required votes of
stockholders at a duly held stockholders' meeting (including, without
limitation, any adjournment thereof) of New Image (or by written
consent of New Image stockholders); provided, however, that the right
to terminate this Agreement under this Section 9.1(a)(ii)(B) shall not
be available to New Image in the event of a breach by New Image of any
of its obligations pursuant to Section 5.2 or of a breach by any party
to a Voting Agreement (other than Buyer) of any of such party's
obligations pursuant to the Voting Agreement; or
(C) if there shall be any law or regulation that makes
consummation of the Transaction illegal or otherwise prohibited or if
any judgment, injunction, order or decree enjoining Buyer or New Image
from consummating the Transaction is entered and such judgment,
injunction, order or decree shall become final and nonappealable.
(iii) by either Buyer or New Image, if there shall have been a breach
or failure to perform by the other of any of its representations,
warranties, covenants or obligations contained in this Agreement, which
breach or failure to perform would result in the failure to satisfy one or
more of the conditions set forth in Section 8.1 or 8.2 (in the case of a
breach or failure to perform by New Image) or Section 8.1 or 8.3 (in the
case of a breach or failure to perform by Buyer), and in any such case such
breach or failure to perform shall be incapable of being cured by the End
Date (other than a failure to comply with the obligation specified in
Article 2 to effect the Closing) after written notice thereof shall have
been received by the party alleged to be in breach or failing to perform.
(b) The party desiring to terminate this Agreement pursuant to this Section
9.1 shall give written notice of such termination to the other party in
accordance with Section 12.1, specifying the provision hereof pursuant to which
such termination is effected.
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SECTION 9.2. Effect of Termination.
If this Agreement is terminated pursuant to Section 9.1, this Agreement
shall become void and of no effect with no liability on the part of any party
hereto, except that (a) the agreements contained in this Section 9.2, in
Sections 7.11 and 12.3(a) and in the Confidentiality Agreement shall survive the
termination hereof and (b) no such termination shall relieve any party of any
liability or damages resulting from any willful breach or failure to perform by
that party of this Agreement, including any liability for payment of the
Termination Fee.
SECTION 9.3. Termination Fee.
(a) If New Image terminates this Agreement pursuant to Section 9.1(a)(iii)
(other than for a breach of any of the representations or warranties in Article
4 of which Buyer and Parent had no Knowledge as of the date hereof) and if at
the time of such termination New Image had fulfilled in all material respects
its obligations under this Agreement and no party (other than Buyer) to the
Voting Agreements had breached its obligations thereunder, then within three (3)
business days following delivery by New Image to Buyer of notice of such
termination specifying in reasonable detail the basis for such termination,
Buyer shall pay to New Image the Termination Fee.
(b) If Buyer terminates this Agreement pursuant to (i) Section
9.1(a)(ii)(A) or (B) and the failure to consummate the Transaction by the End
Date or obtain the New Image Stockholder Approval results from the breach by any
party (other than the Buyer) of its obligations under a Voting Agreement, or
(ii) Section 9.1(a)(iii) (other than for a breach of any of the representations
or warranties in Article 3 of which New Image had no Knowledge as of the date
hereof) and if at the time of such termination Buyer had fulfilled in all
material respects its obligations under this Agreement, then within three (3)
business days following delivery by Buyer to New Image of notice of such
termination specifying in reasonable detail the basis for such termination, New
Image shall pay to Buyer the Termination Fee.
(c) As used herein, "Termination Fee" means the sum in cash of (i) three
million dollars ($3,000,000) and (ii) all Transaction Costs incurred by the
party entitled to the Termination Fee. Each party acknowledges and agrees that
the agreements contained in this Section 9.3 are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
neither party would have entered into this Agreement and the Termination Fee is
not unreasonable in light of the Purchase Price proposed to be paid by Buyer and
the consequences to New Image of a failure to consummate the Transaction because
of a breach by Buyer of this Agreement.
ARTICLE 10
INDEMNIFICATION
SECTION 10.1. Survival.
Except as otherwise set forth in this Agreement, all representations,
warranties, covenants, and obligations in this Agreement, the disclosure
schedules, the supplements to the disclosure schedules, the certificates
delivered pursuant to Sections 8.2(c) and 8.3(c), and any other certificate or
document delivered by either party pursuant to this Agreement will survive
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the Closing. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
SECTION 10.2. Indemnification by New Image.
New Image will indemnify and hold harmless Parent, Buyer and their
respective representatives, stockholders, controlling persons, and affiliates
(collectively, the "Buyer Indemnified Persons") for, and will pay to the Buyer
Indemnified Persons the amount of, any loss, claim, damage (excluding incidental
and consequential damages which are not reasonably foreseeable), expense
(including reasonable costs of investigation and defense and reasonable
attorneys' fees) or diminution of value, whether or not involving a third-party
claim (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any breach of any representation or warranty made by New Image in this
Agreement (without giving effect to any supplement to the New Image Disclosure
Schedules), the New Image Disclosure Schedules, the supplements to the New Image
Disclosure Schedules, or any other certificate or document delivered by New
Image pursuant to this Agreement;
(b) any breach by New Image of any covenant or obligation of New Image in
this Agreement or any agreement, document or instrument delivered in connection
with this Agreement;
(c) the failure by New Image to pay, discharge or perform as and when due,
any of the Excluded Liabilities (or any claims relating thereto); and
(d) any liability resulting from Article 6 of the Uniform Commercial Code
and any similar laws relating to bulk sales and transfers.
SECTION 10.3. Indemnification by Buyer.
Buyer will indemnify and hold harmless New Image and its representatives,
stockholders, controlling persons, and affiliates (collectively, the "New Image
Indemnified Persons") for, and will pay to the New Image Indemnified Persons the
amount of, any Damages arising, directly or indirectly, from or in connection
with:
(a) any breach of any representation or warranty made by Buyer or Parent in
this Agreement (without giving effect to any supplement to the Buyer Disclosure
Schedules), the Buyer Disclosure Schedules, the supplements to the Buyer
Disclosure Schedules, or any other certificate or document delivered by Buyer or
Parent pursuant to this Agreement;
(b) any breach by Buyer or Parent of any covenant or obligation of Buyer or
Parent in this Agreement or any agreement, document or instrument delivered in
connection with this Agreement; and
(c) the failure by Buyer or Parent to pay, discharge or perform as and when
due, any of the Assumed Liabilities (or any claims relating thereto).
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SECTION 10.4. Limitations on Amount.
(a) New Image will have no liability for indemnification with respect to
the matters described in Section 10.2(a) or (b) until the total of all Damages
with respect to such matters exceeds $300,000 (the "Threshold Amount"). Once the
total of all Damages under Section 10.2(a) and (b) reaches the Threshold Amount,
New Image shall be immediately liable for $100,000 and shall be liable for all
further Damages with respect to the matters described in Section 10.2(a) and (b)
until the first to occur of the following: (i) the total Damages paid by New
Image to the Buyer Indemnified Persons pursuant to Section 10.2(a) and (b)
equals $2,500,000 or (ii) the total Damages paid by New Image to the Buyer
Indemnified Persons pursuant to Section 10.2(a) and (b), when added to the total
Damages paid by the Goldman Sachs Parties (as defined in the Indemnification
Agreement) to the Indemnified Persons (as defined in the Indemnification
Agreement), equals the Cap (as defined in the Indemnification Agreement) (the
"General Cap"), and shall have no liability pursuant to Section 10.2(a) and (b)
for any Damages in excess of the General Cap. The Threshold Amount and General
Cap shall not apply to any Damages with respect to the matters described in
Section 10.2 (c) and (d).
(b) Buyer will have no liability for indemnification with respect to the
matters described in Section 10.3(a) or (b) until the total of all Damages with
respect to such matters exceeds the Threshold Amount. Once the total of all
Damages under Section 10.3(a) and (b) reaches the Threshold Amount, Buyer shall
be immediately liable for $100,000 and shall be liable for all further Damages
with respect to the matters described in Section 10.3(a) and (b) until the total
Damages paid by Buyer to the New Image Indemnified Persons pursuant to Section
10.3(a) and (b) equals the General Cap, and shall have no liability pursuant to
Section 10.3(a) and (b) for any Damages in excess of the General Cap. The
Threshold Amount and General Cap shall not apply to any Damages with respect to
the matters described in Section 10.3(c).
SECTION 10.5. Time Limitations.
(a) If the Closing occurs, New Image will have no liability pursuant to
Section 10.2(a) or (b) unless on or before the first anniversary of the Closing
Date a Buyer Indemnified Person notifies the Investor Representative of a claim
for Damages specifying the factual basis of that claim in reasonable detail to
the extent then known by the Buyer Indemnified Person, and New Image shall have
no further liability pursuant to Section 10.2(a) or (b) for any later claims.
Claims by a Buyer Indemnified Person pursuant to Section 10.2(c) and (d) may be
made at any time.
(b) If the Closing occurs, Buyer will have no liability pursuant to Section
10.3(a) or (b) unless on or before the first anniversary of the Closing Date a
New Image Indemnified Person notifies Buyer of a claim for Damages specifying
the factual basis of that claim in reasonable detail to the extent then known by
the New Image Indemnified Person, and Buyer shall have no further liability
pursuant to Section 10.3(a) or (b) for any later claims. Claims by a New Image
Indemnified Person pursuant to Section 10.3(c) may be made at any time.
SECTION 10.6 Deduction for Amounts Recoverable from Other Sources.
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The amount of any Damages subject to indemnification under Section 10.2 or
Section 10.3 shall be calculated net of any amounts which have been previously
recovered by an indemnified person under insurance policies or other collateral
sources (such as contractual indemnities of any Person which are contained
outside this Agreement), taking into account the cost to the indemnified person
of recovering such amounts (such as retrospective premium adjustments and
experience-based premium adjustments), and each indemnified person hereby
covenants that it will not release any such collateral sources from any
obligations they may have. In the event any such amounts recovered or
recoverable under insurance policies or other collateral sources are not
received before any claim for indemnification is paid pursuant to Section 10.2
or 10.3, then the indemnified person shall pursue such insurance policies or
collateral sources with reasonable diligence (unless the indemnified person
determines that it is not in the indemnified person's best interests to do so,
in which case the indemnified person shall permit the indemnifying person to
pursue such recoveries on its behalf), and in the event it receives any
recovery, the amount of such recovery shall be applied first, to reimburse the
indemnified person for its unreimbursed out-of-pocket expenses (including
reasonable attorneys' fees) expended in pursuing such recovery, second, to
refund any payments made by the indemnifying person pursuant to this Article 10
which would not have been so paid had such recovery been obtained prior to such
payment, and third, any excess to the indemnified person. If the indemnified
person fails or elects not to pursue any such insurance policies or collateral
sources with reasonable diligence, then the indemnifying person shall have the
right of subrogation to pursue such insurance policies or collateral sources and
may take any reasonable actions necessary to pursue such rights of subrogation
in its name or the name of the party from whom subrogation is obtained. The
indemnified person shall reasonably cooperate with the indemnifying person to
pursue a subrogation claim. Any recovery obtained by the indemnifying person
shall be applied first, to reimburse the indemnifying person for its
unreimbursed out-of-pocket expenses (including reasonable attorney's fees)
expended in pursuing such recovery, second, to refund any payments made by the
indemnifying person pursuant to Section 10.2 or 10.3 with respect to the Damages
for which the collateral source was also responsible, and third, any excess to
the indemnified person.
SECTION 10.7. Mandatory Set-Off.
Upon notice to the Investor Representative specifying in reasonable detail
the basis for such set off, Buyer shall set off any amount to which it or the
other Buyer Indemnified Persons may be entitled under Section 10.2 against
amounts otherwise payable under the Series A Five Year Notes and the One Year
Notes. Such set off shall be allocated 40% to the holders of Series A Five Year
Notes and 60% to the holders of the One Year Notes and shall, within each of the
Series A Five Year Notes and One Year Notes, be pro rata among the holders
thereof in accordance with the original aggregate principal amounts issued to
each. The exercise of such right of set-off by Buyer in good faith, whether or
not ultimately determined to be justified, will not constitute an event of
default under the Series A Five Year Notes or the One Year Notes. The sole
recourse of the Buyer and the other Buyer Indemnified Persons to recover amounts
owed them pursuant to Section 10.2(a) and (b) shall be the set off right
specified in this Section 10.7.
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SECTION 10.8. Indemnification Procedures - Third Party Claims.
(a) Promptly after receipt by an indemnified person of notice of the
commencement of any Proceeding against it for which the indemnifying person may
be liable pursuant to Section 10.2 or 10.3, such indemnified person will, if a
claim is to be made against the indemnifying persons, give notice to the
indemnifying person of the commencement of such claim, containing factual
information (to the extent known) describing any asserted Damages in reasonable
detail. Following delivery of such notice, the indemnified person shall, if
requested by the indemnifying person, promptly provide copies of any notice and
other documents received regarding such claim. The failure to notify the
indemnifying person will not relieve the indemnifying party of any liability
that it may have to any indemnified person, except to the extent that the
indemnifying person demonstrates that the defense of such action is prejudiced
by the indemnified person's failure to give such notice.
(b) If any Proceeding referred to in Section 10.8(a) is brought against an
indemnified person and it gives notice to the indemnifying person of the
commencement of such Proceeding, the indemnifying person will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) an
indemnifying person is also a party to such Proceeding and the indemnified
person determines in good faith that joint representation would be
inappropriate, or (ii) the indemnifying person fails to provide reasonable
assurance to the indemnified person of the financial capacity of the
indemnifying persons to defend such Proceeding and provide indemnification with
respect to such Proceeding), to assume the defense of such Proceeding with
counsel satisfactory to the indemnified person and, after notice from the
indemnifying person to the indemnified person of its election to assume the
defense of such Proceeding, the indemnifying persons will not, as long as they
diligently conduct such defense, be liable to the indemnified person under this
Article 10 for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, in each case subsequently incurred by the
indemnified person in connection with the defense of such Proceeding. If the
indemnifying person assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding for which the indemnifying person has assumed the defense are
within the scope of and subject to indemnification, (ii) no compromise or
settlement of such claims may be effected by the indemnifying person without the
indemnified person's consent (which consent shall not be unreasonably withheld)
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any indemnified person and no
effect on any other claims that may be made against the indemnified person, (B)
the sole relief provided is monetary damages for which the Indemnifying Parties
are liable under this Agreement, and (C) such settlement or judgment includes as
an unconditional term thereof the delivery by the claimant or plaintiff to the
indemnified person of a written release from all liability in respect of such
Proceeding; and (iii) the indemnified person will have no liability with respect
to any compromise or settlement of such claims effected without its consent. If
notice is given to the indemnifying person of the commencement of any Proceeding
and the indemnifying person does not, within twenty days after the indemnified
person's notice is given, give notice to the indemnified person of its election
to assume the defense of such Proceeding, the indemnifying persons will, subject
to Section 10.8(d), be bound by any determination made in such Proceeding or any
compromise or settlement effected by the indemnified person.
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(c) Notwithstanding the foregoing, if an indemnified person determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified person may, by notice to the indemnifying person, assume the
exclusive right to defend, compromise, or settle such Proceeding, subject to
Section 10.8(d).
(d) In no event will the indemnified person consent to the entry of any
judgment with respect to, or otherwise settle any Proceeding without the prior
written consent of the indemnifying person (which consent shall not be
unreasonably withheld). The indemnifying persons shall have no liability with
respect to any compromise or settlement effected without the prior written
consent of the indemnifying person.
(e) The parties hereto shall cooperate in the defense of any Proceeding and
shall furnish such records, information and testimony, and attend at such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested in connection therewith.
SECTION 10.9. Indemnification Procedures - Other Claims.
A claim for indemnification for any matter not involving a third-party
claim shall be asserted by notice to the indemnifying person.
SECTION 10.10. Investor Representative.
New Image, by virtue of its execution of this Agreement, has irrevocably
constituted and appointed GS Capital Partners II, L.P., a Delaware limited
partnership, effective as of the Effective Time (together with such person's
permitted successors, the "Investor Representative"), as its true and lawful
agent and attorney-in-fact for purposes of the resolution of indemnity claims
under Article 10 hereof, to exercise all or any of the powers, authority and
discretion conferred on it under this Agreement, to give and receive notices on
its behalf and to be its exclusive representative with respect to any matter,
suit, claim, action or proceeding arising with respect to the matters set forth
in Article 10 of this Agreement, including, without limitation, the defense,
settlement or compromise of any claim, action or proceeding for which any Buyer
Indemnified Person may be entitled to indemnification pursuant to Article 10,
and the Investor Representative agrees to act as, and to undertake the duties
and responsibilities of, such agent and attorney-in-fact. This power of attorney
is coupled with an interest and is irrevocable. The Investor Representative is
authorized by this Agreement to act hereunder with the powers and authority
provided for herein, as representative of New Image and its successors. The
Investor Representative shall not be liable for any action taken or not taken by
it in connection with its obligations under this Agreement in the absence of its
own gross negligence or willful misconduct. If the Investor Representative shall
be unable or unwilling to serve in such capacity, the Investor Representative
shall appoint its successor(s) to serve and exercise the powers of the Investor
Representative hereunder.
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ARTICLE 11
DEFINED TERMS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article 11:
"Applicable Contract" means any Contract (a) under which New Image or any
of its Subsidiaries has or may acquire any rights, (b) under which New Image or
any of its Subsidiaries has or may become subject to any obligation or
liability, or (c) by which New Image or any of its Subsidiaries or any of the
assets owned or used by them is or may become bound.
"Buyer Guaranty" means the Guaranty by Buyer of Parent's obligations under
the Series A Five Year Notes, One Year Notes and Three Year Notes attached
hereto as Exhibit G.
"Code" means the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"Contract" means any binding agreement, commitment or instrument.
"Directors and Officers Release" means the Directors and Officers Release
in the form attached hereto as Exhibit H-1.
"Dissenting Shares" means any shares of New Image Securities held by a
holder which has exercised dissenters' rights for such shares in accordance with
applicable Legal Requirements and which, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights.
"Doctor Notes" means the Promissory Notes and Convertible Promissory Notes
issued by New Image in connection with its acquisition of Allied Practices.
"Doctor Release" means the Doctor Release in the form attached hereto as
Exhibit H-3.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost, damages,
expense, liability, obligation, or other responsibility arising under
Environmental Law or Occupational Safety and Health Law and consisting of or
arising out of: (a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products); (b) fines, penalties,
judgments, awards, settlements, legal or administrative
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proceedings, damages, losses, claims, demands and response, investigative,
remedial, or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law; (c) financial responsibility under
Environmental Law or Occupational Safety and Health Law for cleanup costs or
corrective action, including any investigation, cleanup, removal, containment,
or other remediation or response actions ("Cleanup") required by applicable
Environmental Law or Occupational Safety and Health Law (whether or not such
Cleanup has been required or requested by any Governmental Body or any other
Person) and for any natural resource damages; or (d) any other compliance,
corrective, investigative, or remedial measures required under Environmental Law
or Occupational Safety and Health Law.
"Environmental Law" means any Legal Requirement that requires or relates
to: (a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment; (b) preventing or reducing to acceptable
levels the release of pollutants or hazardous substances or materials into the
Environment; (c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated; (d) protecting
resources, species, or ecological amenities; (e) reducing to acceptable levels
the risks inherent in the transportation of hazardous substances, pollutants,
oil, or other potentially harmful substances; (f) reducing to acceptable levels
the risks inherent in the transportation of hazardous substances, pollutants,
oil, or other potentially harmful substances; (g) cleaning up pollutants that
have been released, preventing the threat of release, or paying the costs of
such clean up or prevention; or (h) making responsible parties pay private
parties, or groups of them, for damages done to their health or the Environment,
or permitting self-appointed representatives of the public interest to recover
for injuries done to national resources.
"ERISA Affiliate" means each business or entity which is a member of a
"controlled group of corporations," under "common control" or an "affiliated
service group" with New Image within the meaning of Sections 414(b), (c) or (m)
of the Code, or required to be aggregated with New Image under Section 414(o) of
the Code, or is under "common control" with New Image, within the meaning of
Section 4001(a)(1) of ERISA.
"Facilities" means any real property, leaseholds, or other interests in
real property currently or formerly owned or operated by New Image, any of its
Subsidiaries or the Allied Practices and any buildings, plants, structures, or
equipment (including motor vehicles, tank cars, and rolling stock) currently or
formerly owned or operated by New Image, any of its Subsidiaries or any of the
Allied Practices.
"Governmental Authority" means any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); or (d)
body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
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"GS Investors" means GS Capital Partners II, L.P., GS Capital Partners II
Offshore, L.P., Bridge Street Fund 1997, L.P., Stone Street Fund 1997, L.P., and
Goldman, Sachs & Co. Verwaltungs GmbH.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment.
"Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Income Taxes" means (a) any Tax imposed by Subtitle A or F of the Code,
(b) any Tax imposed by any State of the United States or by any political
subdivision of any such State which is imposed on or measured by net income,
including state and local franchise or similar Taxes measured by net income, and
(c) any Tax imposed by any foreign country or any possession of the United
States, or by any political subdivision of any foreign country or United States
possession, which is an income tax as defined in Treasury Regulation Section
1.901-2.
"Indemnification Agreement" means the Indemnification Agreement in the form
attached hereto as Exhibit F.
"Intellectual Property Assets" means the following insofar as they are
owned, used or licensed by New Image or any of its Subsidiaries as licensee or
licensor: (i) the name "New Image Orthodontic Group," all fictional business
names, trading names, registered and unregistered trademarks, service marks, and
applications; (ii) all patents, patent applications, and inventions and
discoveries that may be patentable; (iii) all copyrights in both published works
and unpublished works; (iv) all rights in mask works; (v) all know-how, trade
secrets, confidential information, customer lists, marketing, advertising and
collateral materials (including materials directed to the public, orthodontists
or patients and related photographs, film and other recorded media), manuals and
protocols, software, internet web sites, internet domain names, technical
information, data, process technology, plans, drawings and blue prints.
"Investor Release" means the Investor Release in the form attached hereto
as Exhibit H-2.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" of New Image with respect to any matter means the actual
knowledge of Ronald B. Cooper, Edward P. Stahel III, Gerald L. Baxter, R. Mark
Cronquist and Ronald Jacobe. "Knowledge" of Buyer with respect to any matter
means the actual knowledge of Sam Westover, Paul H. Hayase and James C. Wilson.
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"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Licenses" means any approval, consent, license, permit, waiver, or other
authorization issued, granted, given, or otherwise required by or under the
authority of any Governmental Authority or pursuant to any Legal Requirement.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, prospects,
assets, or condition (financial or otherwise) of New Image, (b) the prevention
of, or a material delay or material impairment of, the ability of any party to
consummate any of the transactions contemplated by this Agreement, or (c) a
material reduction in the benefits expected to be realized by Buyer as a result
of the consummation of the transactions contemplated by this Agreement.
"Material Adverse Effect on Parent" means (a) a material adverse change in,
or a material adverse effect upon, the operations, business, properties,
prospects, assets, or condition (financial or otherwise) of Parent, (b) the
prevention of, or a material delay or material impairment of, the ability of any
party to consummate any of the transactions contemplated by this Agreement or
(c) a material reduction in the benefits expected to be realized by New Image as
a result of the consummation of the transactions contemplated by this Agreement.
"New Image Securities" means the New Image Common Stock, the New Image
Preferred Stock and the Zero Coupon Notes.
"New Notes" means the One Year Notes, the Three Year Notes, the Series A
Five Year Notes, the Series B Five Year Notes and, if issued, the Replacement
Notes.
"Note Repayment Amount" means the amount determined by subtracting (a) the
aggregate principal amount of Doctor Notes at the Closing Date from (b)
$13,609,992.48.
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards.
"One Year Notes" means the one year notes attached to this Agreement as
Exhibit I.
"Parent Guaranty" means the Guaranty by Parent of Buyer's obligations under
the Series B Five Year Notes attached hereto as Exhibit J.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under Title IV of ERISA.
"Permitted Encumbrances" means (a) Encumbrances for taxes not yet due and
payable or being contested in good faith by appropriate Proceedings, (b)
easements, covenants, conditions and restrictions on real property of record,
(c) easements, covenants, conditions and restrictions on real
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property not of record which cannot reasonably be expected to materially
interfere with New Image's use of the affected property, (d) any zoning or other
governmentally established restrictions or encumbrances on real property, (e)
workers or unemployment compensation Encumbrances arising in the ordinary course
of business, (f) mechanic's, materialman's, supplier's, vendor's or similar
Encumbrances arising in the ordinary course of business securing amounts which
are not delinquent, (g) railroad trackage agreements, utility, slope and
drainage easements, right-of-way easements and leases regarding signs and (h)
other imperfections of title, easements, covenants, conditions, restrictions or
encumbrances, which individually or in the aggregate cannot reasonably be
expected to materially interfere with New Image's use of the affected property.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Practice Business Expenses" for any Allied Practice means "Practice
Business Expenses" (or, if different, any similar term) as defined in such
Allied Practice's Practice Management Agreement.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Authority or arbitrator.
"Release" means any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Series A Five Year Notes" means the five year notes in the form attached
hereto as Exhibit K.
"Series B Five Year Notes" means the five year notes in the form attached
hereto as Exhibit L.
"Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
"Tax" means any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency, or other fee,
and any related charge or amount (including any fine, penalty, interest, or
addition to tax), imposed, assessed, or collected by or under the authority of
any Governmental Authority or payable pursuant to any tax-sharing agreement or
any other contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency, or fee.
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"Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Authority in connection with the determination, assessment, collection, or
payment of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release" means a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Three Year Notes" means the three year notes in the form attached hereto
as Exhibit M.
ARTICLE 12
MISCELLANEOUS
SECTION 12.1. Notices.
All notices, requests and other communications to any party hereunder shall
be in writing (including facsimile or similar writing) and shall be given,
if to Buyer or Parent, to:
OrthAlliance New Image, Inc.
21535 Hawthorne Boulevard
Torrance, CA 90503
Attention: General Counsel
Facsimile No.: (310) 792-1350
if to New Image, to:
New Image Orthodontic Group, Inc.
2727 Paces Ferry Road, Suite 2-1750
Atlanta, Georgia 30339
Attention: General Counsel
Facsimile No.: (770) 805-1697
with a copy (which will not constitute notice for purposes of this
Agreement) to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Paul M. Reinstein, Esquire
Richard A. Steinwurtzel, Esquire
Facsimile No.: (212) 859-8586
if to the Investor Representative, to:
GS Capital Partners II, L.P.
85 Broad Street
New York, New York 10004
Attention: Carla Skodinski
Facsimile No.: (212) 902-3000
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or such other address or facsimile number as such party may hereafter specify
for the purpose by written notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if given by facsimile,
when such facsimile is transmitted to the facsimile number specified in this
Section 12.1 and the appropriate facsimile confirmation is received or (ii) if
given by any other means, when delivered at the address specified in this
Section.
SECTION 12.2. Amendments; No Waivers.
(a) Any provision of this Agreement (including, without limitation, the
Exhibits and Schedules hereto) may be amended or waived prior to the Effective
Time if, and only if, such amendment or waiver is in writing and signed, in the
case of an amendment, by New Image and Buyer, or in the case of a waiver, by the
party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 12.3. Expenses.
(a) In the event this Agreement is terminated pursuant to its terms, all
Transaction Costs incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such Transaction Costs. For purposes of this Agreement, "Transaction Costs"
shall mean all fees and expenses incurred in connection with this Agreement and
the transactions contemplated hereby including, without limitation, legal,
accounting, finders, broker's and financial advisory fees.
(b) Buyer shall pay all Transaction Costs incurred by Buyer in connection
with this Agreement and the transactions contemplated by this Agreement. In
addition, following the Effective Time Buyer shall reimburse New Image for up to
$100,000 of its Transaction Costs (including Transaction Costs paid by New Image
prior to the Effective Time and excluding Transaction Costs incurred after the
Effective Time), provided that New Image shall first provide Buyer with a
reasonably detailed written request for such reimbursement, including copies of
billing statements representing Transaction Costs. Any Transaction Cost either
(i) incurred by New Image on or before the Effective Time in excess of $100,000
or (ii) incurred by New Image after the Effective Time shall be the sole
responsibility of New Image and shall be an Excluded Liability hereunder.
(c) For purposes of this Agreement, the following costs shall not be
Transaction Costs but shall instead be deemed to have been incurred and
allocated among Buyer and Seller as follows:
(i) All fees and expenses relating to filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall be borne by
Buyer;
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(ii) All fees and charges of Governmental Authorities in connection
with the transfer, issuance or authorization of any License shall be borne
by Buyer;
(iii) All fees and charges to obtain all approvals, consents,
registrations, permits, authorizations and other confirmations required to
be obtained by New Image from any third party necessary, proper or
advisable to consummate the Transaction and the other transactions
contemplated by this Agreement, including all consents identified or
required to be identified on Schedule 3.4 to the New Image Disclosure
Letter, shall be borne by New Image;
(iv) All fees and charges to obtain all approvals, consents,
registrations, permits, authorizations and other confirmations required to
be obtained by Buyer or Parent from any third party necessary, proper or
advisable to consummate the Transaction and the other transactions
contemplated by this Agreement, including all consents identified or
required to be identified on Schedule 4.4 to the New Image Disclosure
Letter, shall be borne by Buyer; and
(v) All liabilities for Taxes in the nature of sales taxes incurred as
a result of the sale of the Transferred Assets hereunder to Buyer shall be
borne by New Image.
All such charges, fees and expenses shall be promptly settled between the
parties at the Closing or upon termination or expiration of further proceedings
under this Agreement, or with respect to such charges, fees and expenses not
determined as of such time, as soon thereafter as is reasonably practicable.
SECTION 12.4. Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns, provided that no party may assign, delegate or otherwise transfer
any of its rights or obligations under this Agreement without the consent
of the other parties hereto.
SECTION 12.5. Governing Law.
This Agreement shall be construed in accordance with and governed by the
law of the State of Georgia, without regard to principles of conflicts of law.
SECTION 12.6. Jurisdiction.
Any Proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby or thereby may be brought in any state court sitting in the
County of Los Angeles, California, or any federal court located in the Central
District of the State of California, and each of the parties hereby consents to
the jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such Proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such Proceeding in any such court or that any such
Proceeding which is brought in
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any such court has been brought in an inconvenient forum. Process in any such
Proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 12.1
shall be deemed effective service of process on such party.
SECTION 12.7. Waiver of Jury Trial.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 12.8. Counterparts; Effectiveness.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall become effective when
each party hereto shall have received counterparts hereof signed by the other
party hereto.
SECTION 12.9. Entire Agreement.
(a) This Agreement (including the Exhibits and Schedules hereto), the
agreements contemplated hereby and the Confidentiality Agreement constitute the
entire agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof, including the Agreement and Plan of Merger, dated as of December 18,
1999, among Parent, OrthAlliance New Image, Inc., a Georgia corporation, and New
Image, and the agreements entered into in connection therewith. Except as
provided in Section 6.3, 6.5, 6.6 and 7.10, no provision of this Agreement or
any other agreement contemplated hereby is intended to confer on any Person
other than the parties hereto any rights or remedies.
(b) Upon execution of this Agreement, the parties agree that the Agreement
and Plan of Merger, dated as of December 18, 1999, among Parent, OrthAlliance
New Image, Inc., a Georgia corporation, and New Image, shall be terminated by
mutual agreement of the parties pursuant to Section 9.1(a)(i) thereof.
SECTION 12.10. Captions; References.
The captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof. References herein
to "Sections," "Exhibits" and "Schedules" are to Sections of, or Exhibits or
Schedules to, this Agreement unless otherwise indicated.
SECTION 12.11. Severability.
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
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shall in no way be affected, impaired or invalidated so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such a determination, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
ORTHALLIANCE, INC.
By: /s/ SAM WESTOVER
----------------------------------
Name: Sam Westover
Title: President
ORTHALLIANCE NEW IMAGE, INC.
By: /s/ SAM WESTOVER
----------------------------------
Name: Sam Westover
Title: President
NEW IMAGE ORTHODONTIC GROUP, INC.
By: /s/ E.P. STAHEL III
----------------------------------
Name: E.P. Stahel III
Title: President
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EXHIBIT 99.1
ORTHALLIANCE COMPLETES MAJOR TRANSACTION
TORRANCE, Calif.--(BW HealthWire)--March 1, 2000--OrthAlliance, Inc.
(Nasdaq/NM: ORAL), a leading provider of practice management and consulting
services to orthodontic and pediatric dentistry practices, today announced that
it had completed its previously announced acquisition of privately held New
Image Orthodontic Group, Inc., located in Atlanta, Georgia. The transaction,
which is accretive to earnings, will be accounted for as a purchase.
Consideration for the transaction included approximately $5.5 million in cash
and $26 million in promissory notes.
New Image includes 36 high quality, respected practitioners operating out
of 50 offices in nine states. During 1999, New Image achieved over $33 million
in patient revenues and the addition of New Image brings the number of
practitioners affiliated with OrthAlliance to 213 and the number of offices to
368 in 32 states.
Mr. Sam Westover, president and chief executive officer of OrthAlliance,
Inc., said, "We are excited and pleased to announce the completion of the
acquisition of New Image and its practices. The combination of these highly
successful practices with our current affiliates presents greater strength,
economies of scale and increased profitability and growth potential.
"We have a proven business model that has generated significant value as
demonstrated by our growth in earnings per share, revenues and cash flow. New
Image is an excellent fit with OrthAlliance. They share our focus on the highest
quality and professionalism. In addition to substantially increasing our revenue
run rate, this transaction expands our proprietary expertise, including proven
and effective systems, protocols and methods, which can be shared among all our
affiliates. Our growth strategy has been clear and consistent since the
beginning of our company, and the acquisition of New Image is an acceleration of
that strategy."
A listen-only simulcast of the conference call to discuss this press
release will be available through the Company's website at www.orthalliance.com
beginning at 2:00 p.m. Eastern time tomorrow, Thursday, March 2, 2000. In
addition, a 30-day online replay will be available approximately two hours after
the conclusion of the call.
OrthAlliance, Inc. is a national provider of practice management and
consulting services to orthodontic and pediatric dentistry practices in the
United States.
This press release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
based on certain assumptions and analysis made by the Company in light of its
experience and its perception of historical trends, current conditions, expected
future developments and other factors the Company believes are important under
the circumstances. Such statements are subject to a number of assumptions,
risks, and uncertainties that could cause actual future activities and results
of operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual activities
and results to differ include, without
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limitation, the Company's ability to grow through practice affiliations,
dependence on practice revenues, access to capital sources, regulatory
constraints, retention of key personnel and other factors set forth in the
Company's Securities and Exchange Commission filings.
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