STOCK PUT/CALL OPTION AND SUCCESSOR DESIGNATION AGREEMENT
This Stock Put/Call Option and Successor Designation Agreement (the
"Agreement") is made effective as of this 14th day of August, 1998 by and among
Xxxxx X. Xxxxxxxxxxx, D.D.S. M.S., Inc., a professional corporation (the "PC")
incorporated under the laws of the State of California (the "State"); Xxxxx X.
Xxxxxxxxxxx, D.D.S. ("Xx. Xxxxxxxxxxx") who is duly licensed to practice
orthodontics in the State; Omega Orthodontics, Inc., a Delaware corporation
("OMEGA"); and Omega Orthodontics of Woodland Hills, Inc., a Delaware
corporation (the "MSO"), which is a wholly-owned subsidiary of OMEGA, with
reference to the following facts.
RECITALS
A. OMEGA is an orthodontic and other dental specialty practice
management company and has expertise in managing orthodontic and other dental
specialty practices including practice management systems, office space,
equipment, furnishings and active administrative personnel necessary for the
operation of such practices and providing high quality healthcare management
services to such practices, directly or indirectly through management service
organizations such as the MSO.
B. OMEGA acquired certain assets of Xx. Xxxxxxxxxxx pursuant to that
certain Affiliation Agreement and Asset Purchase Agreement (the "Affiliation
Agreement") dated as of August 14, 1998 by and between OMEGA and Xx.
Xxxxxxxxxxx, and the parties have determined that it would be to their mutual
advantage to increase Xx. Xxxxxxxxxxx'x orthodontic practice by each acquiring
certain assets of Xx. Xxxxxxx X. Xxxxx'x orthodontic practice located at 5251
and 0000 Xxxxxxx Xxx., Xxxxxx Xxxxx, Xxxxxxxxxx ("New Orthodontic Offices") and
merging the Original Orthodontic Offices and the New Orthodontic Offices into
one signal orthodontic practices with two separate and distinct locations
(hereinafter know as the "Orthodontic Practices"); and
C. The PC now owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Xx.
Xxxxxxxxxxx affiliated with the PC.
D. The PC and the MSO have entered into that certain Management
Services Agreement (the "Management Services Agreement") dated as of even date
herewith for the management by the MSO of the non-orthodontic business affairs
of the PC.
E. Xx. Xxxxxxxxxxx owns all of the capital stock (the "Capital Stock")
of the PC and desires to provide for successor ownership upon the occurrence of
certain events. When used in this Agreement, the term "Capital Stock" shall mean
all of Xx. Xxxxxxxxxxx'x right, title, interest and estate in and to all of the
issued and outstanding stock in the PC, including any stock hereafter issued and
any rights to any additional stock and any preemptive rights, warrants and
instruments of like effect, as set forth on Exhibit B.
F. As a condition of entering into the new Management Services
Agreement, Xx. Xxxxxxxxxxx has agreed to grant to the MSO, and the MSO desires
to acquire from Xx. Xxxxxxxxxxx certain rights, including but not limited to,
the right to designate the successor purchaser (the "Designated Successor") of
all or any part of the issued and outstanding Capital Stock upon the occurrence
of certain events. In addition, under the Management Services Agreement, upon
termination thereof, each of the PC and the MSO were granted certain rights to
be set forth in this Agreement.
G. The Parties desire that this Agreement replace and supercede the
Stock Put/Call Option and Successor Designation Agreement dated _____, 1997 by
and between the parties.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the PC, Xx.
Xxxxxxxxxxx, the MSO and OMEGA agree as follows:
1. Defined Terms. The capitalized words and expressions used in this
Agreement, but which are not defined herein shall, unless the context otherwise
requires, have the same meaning as they are given in the Management Services
Agreement.
2. Put Option. The MSO shall have the option (the "Put Option") to
require the PC, upon termination of the Management Services Agreement by the MSO
under Section 10.2 thereof or upon expiration of the Term of the Management
Services Agreement, to:
(a) Purchase from the MSO at fair market value, but not less
than book value all of the leasehold improvements, fixtures, furniture,
furnishings and equipment comprising or located at the Orthodontic
Offices, including all replacements and additions thereto made by the
MSO pursuant to the performance of its obligations under the Management
Services Agreement and all other assets, including inventory and
supplies and intangibles, set forth on the balance sheet as at the end
of the month immediately preceding the date of such termination or
expiration prepared in accordance with GAAP (the "Balance Sheet") to
reflect operations of the MSO in respect of the Orthodontic Offices,
including depreciation, amortization and other adjustments of such
assets shown on such Balance Sheet; and
(b) Purchase, by obtaining an assignment from the MSO, at fair
market value, but not less than book value, the right to receive
payments for breach of the restrictive covenants provided for in
Section 3.7 of the Management Services Agreement and in the applicable
Employment Agreement with Xx. Xxxxxxxxxxx contemplated thereunder, and
any goodwill and other intangible assets set forth on the Balance
Sheet, reflecting amortization or depreciation of the restrictive
covenants, and any goodwill and other intangible assets; and
(c) Assume all debt and all contracts, payables and leases
which are obligations of the MSO and which relate solely to the
performance of its obligations under the Management Services Agreement
or the properties subleased in respect of the Orthodontic Offices.
If the MSO desires to exercise its Put Option, the MSO shall give written notice
of such election to the PC and Xx. Xxxxxxxxxxx at least twenty (20) calendar
days prior to the date specified in such notice as the date for the closing of
the Put Option. Any exercise of the Put Option by the MSO shall be made by an
aggregate payment of the amounts computed under Clauses (a) and (b) of this
Section 2 (collectively, the "Put Price"). It is understood and agreed that Xx.
Xxxxxxxxxxx will continue to be bound by the terms of the non-competition
agreement attached hereto as Exhibit C.
3. Call Option. The PC shall have the option (the "Call Option") to
require the MSO, upon termination of the Management Services Agreement by the PC
under Section 10.1 thereof, to:
(a) Sell to the PC, at fair market value, all of the leasehold
improvements, fixtures, furniture, furnishings and equipment comprising
or located at the Orthodontic Offices, including all replacements and
additions thereto made by the MSO pursuant to the performance of its
obligations under the Management Services Agreement and all other
assets, including inventory and supplies and intangibles, set forth on
the Balance Sheet to reflect operations of the MSO in respect of the
Orthodontic Offices, including depreciation, amortization and other
adjustments of such assets shown on such Balance Sheet; and
(b) Assign to, or grant a waiver in favor of the PC, the
restrictive covenants provided for in Section 3.7 of the Management
Services Agreement and in the applicable Employment Agreement with Xx.
Xxxxxxxxxxx contemplated thereunder, and any goodwill and other
intangible assets set forth on the Balance Sheet, reflecting
amortization or depreciation of the restrictive covenants, and any
goodwill and other intangible assets, such; and
(c) Assign to the PC (which it shall assume) all debt and all
contracts, payables and leases which are obligations of the MSO and
which relate solely to the performance of its obligations under the
Management Services Agreement or the properties subleased in respect of
the Orthodontic Offices.
If the PC desires to exercise its Call Option, the PC shall give written notice
of such election to the MSO at least twenty (20) calendar days prior to the date
specified in such notice as the date for the closing of the Call Option. Any
exercise of the Call Option by the PC shall be made by an aggregate payment to
the MSO of an amount equal to the amortized book value of the assets, tangible
and intangible, described in Clauses (a) and (b) of this Section 3
(collectively, the "Call Price"). For purposes of this Section 3, the "fair
market value" of such assets shall be determined by an independent appraiser
acceptable to, and appointed by, the MSO and the PC. In the event that the MSO
and the PC cannot agree on an independent appraiser, the fair market value of
such assets shall be determined by three independent appraisers, one of whom
shall be appointed by the MSO, one of whom shall be appointed by the PC and the
third of whom shall be appointed by mutual agreement of the two appointed
appraisers. Within sixty (60) days after the appointment of the third appraiser,
the three appraisers shall each submit in writing their determination of
amortized book value of such assets to each of the MSO and the PC, and the
amortized book value of such assets shall be conclusively determined by taking
the numerical average of the two fair market value determinations which are
closest in amount. The cost of obtaining these appraisals shall be paid one-half
by the MSO and one-half by the PC.
Notwithstanding the foregoing, in the event that the PC terminates the
Management Services Agreement pursuant to Section 10.1(a)(1) of the Management
Services Agreement and the MSO is not paying the MSO Expenses (as defined in the
Management Services Agreement) as they become due such that the ability of the
PC to continue to practice orthodontics is compromised, the Call Option may be
exercised by the payment by the PC to the MSO of the sum of (i) the book value
of the assets described in Clause (a) of this Section 3 plus (ii) the book value
of the assets described in Clause (b) of this Section 3, less an amount equal to
two-thirds (2/3) of the difference between (y) all management fees paid by the
PC to the MSO pursuant to Schedule 3 of the Management Services Agreement less
(z) the sum of all the MSO Expenses paid by the MSO under the Management
Services Agreement plus the Rebates paid to the PC pursuant to Schedule 3 of the
Management Services Agreement; provided, however, that the amount due under
clause (ii) of this sentence shall not be less than zero.
4. Closing and Delivery. At the closing ("Closing") of the exercise by
the MSO of the Put Option under Section 2 or of the exercise by the PC of the
Call Option under Section 3, as the case may be, the PC shall pay cash, or, at
the option of the PC and with the consent of Xx. Xxxxxxxxxxx, a combination of
cash, forgiveness of amounts due to Xx. Xxxxxxxxxxx under the Purchase Note
and/or return of the shares of Omega Common Stock received by Xx. Xxxxxxxxxxx
under Section 1.1(a)(iii) of the Affiliation Agreement (the value of such shares
to be determined by multiplying such number of shares by the average of the last
sales (or closing) price for Omega's Common Stock on Nasdaq (or a national
securities exchange) for each of the sixty (60) trading days immediately
preceding the date of the Put Option Notice or the Call Option Notice, as the
case may be) for the repurchased assets, whether the Put Price pursuant to
exercise by the MSO of the Put Option or the Call Price pursuant to exercise by
the PC of the Call Option, as the case may be. The PC and Xx. Xxxxxxxxxxx shall
execute such documents as may be required by the MSO to assume the liabilities
set forth in Section 2(c) or 3(c), as the case may be, and shall use their
respective best efforts to remove the MSO from any liability with respect to
such repurchased assets and with respect to any property leased or subleased by
the MSO. From and after any such Closing, each party shall provide to the other
party reasonable access to books and records then owned by it to permit such
requesting party to satisfy reporting and contractual obligations which may be
required of it. In addition, following any such Closing, the MSO or its designee
shall have reasonable access during normal business hours to the PCs records,
including patient records regarding records of collections, expenses and
disbursements as kept by the MSO in performing its obligations under the
Management Services Agreement, and the MSO may copy any or all such records.
5. Successor Designation Option.
(a) Upon termination of the Management Services Agreement by the MSO
under Section 10.2 thereof or upon expiration of the Term of the Management
Services Agreement or upon the happening of any of the following events (each of
such termination, expiration or event being hereinafter referred to as a
"Transfer Event"), the MSO shall have the option (the "Designated Successor
Option") to designate a Designated Successor to purchase all or any portion of
the Capital Stock then held by Xx. Xxxxxxxxxxx:
(i) the death of Xx. Xxxxxxxxxxx;
(ii) if Xx. Xxxxxxxxxxx is determined to be permanently disabled
so as to be unable to render any professional services on behalf of
the PC, as determined in accordance with paragraph (b) of this Section
5 below;
(iii) if Xx. Xxxxxxxxxxx voluntarily terminates his employment
without first proposing and obtaining the MSO's approval of a proposed
qualified successor orthodontist reasonably acceptable to the MSO on
behalf of the PC;
(iv) if Xx. Xxxxxxxxxxx acts in a criminally or grossly negligent
manner with respect to the performance of professional Orthodontic
services rendered or to be rendered on behalf of the PC;
(v) if Xx. Xxxxxxxxxxx becomes hospitalized for alcohol or drug
abuse;
(vi) if Xx. Xxxxxxxxxxx is convicted of a felony;
(vii) if Xx. Xxxxxxxxxxx loses his license or is otherwise
determined to be disqualified from rendering services as an
orthodontist for the PC by the applicable dental or other comparable
regulatory board of the State;
(viii) if Xx. Xxxxxxxxxxx'x shares of Capital Stock are or are to
be transferred voluntarily or by operation of law to any person who is
a "disqualified person," as defined in the professional corporation
statute of the Laws of the State;
(ix) if Xx. Xxxxxxxxxxx voluntarily files a petition under any
bankruptcy or insolvency law or a petition for the appointment of a
receiver, or makes an assignment for the benefit of creditors;
(x) if Xx. Xxxxxxxxxxx is subjected involuntarily to such a
petition or assignment, or any creditor or other persons obtains an
attachment or other legal or equitable interest in any shares of the
Capital Stock of Xx. Xxxxxxxxxxx and such involuntary petition,
assignment or attachment is not discharged within ninety (90) days
after creation;
(xi) if Xx. Xxxxxxxxxxx is required to transfer any shares of
Capital Stock by reason of a judgment, court order or decree or by
operation of law;
(xii) if Xx. Xxxxxxxxxxx retires within the meaning of Paragraph
(c) of this Section 5; or
(xiii) if Xx. Xxxxxxxxxxx desires to sell more than twenty five
(25%) percent any of his shares of Capital Stock to another
orthodontist as contemplated under Section 8 hereof.
(b) For purposes hereof, "permanent disability" means any illness,
injury, disease or condition, whether mental or physical, which, for a
continuous period of thirty (90) days, (i) prevents Xx. Xxxxxxxxxxx from
performing his duties competently and adequately as determined by the MSO, or
(ii) substantially impairs the PC's or Xx. Xxxxxxxxxxx'x ability to practice
orthodontics.
(c) For purposes hereof, "Retirement" of Xx. Xxxxxxxxxxx shall occur on
the date when Xx. Xxxxxxxxxxx voluntarily withdraws from the practice of
orthodontics at whatever age or for whatever reason and notifies the PC that he
desires to be regarded as "Retired" and fails to have first proposed and
obtained the MSO's approval of a qualified successor orthodontist reasonably
acceptable to the MSO.
6. Successor Designation Option Exercise. Except as otherwise provided
herein, upon exercise of the Successor Designation Option, the Designated
Successor may purchase all, but not less than all, of the Capital Stock. The
Successor Designation Option shall also be exercisable by the MSO as provided in
Section 8 below.
7. Exercise Notice. Any exercise of the Successor Designation Option
shall be accompanied by a written notice (the "Successor Designation Exercise
Notice") to Xx. Xxxxxxxxxxx (or his successor or representative), specifying the
name, address and information showing the qualifications and suitability of the
Designated Successor to conduct or perform professional services on behalf of
the PC and number of shares of Capital Stock of Xx. Xxxxxxxxxxx as to which the
Successor Designation Option is being exercised. Upon the MSO's exercise of the
Successor Designation Option in respect of any event described in Section
5(a)(iii) or (x) as to all of the shares of Capital Stock of Xx. Xxxxxxxxxxx,
Xx. Xxxxxxxxxxx shall execute a Non-Competition Agreement in the form attached
hereto as Exhibit C. The MSO may, at any time, cancel any Successor Designation
Exercise Notice sent by it hereunder.
8. Right of First Refusal and Sale of Stock. If Xx. Xxxxxxxxxxx desires
to sell any of the Capital Stock to another orthodontist (a "Purchaser"), he
shall first give notice to the MSO of his intent to sell such Capital Stock
("Notice of Sale"), giving to the MSO such information as shall be reasonably
requested by it to ascertain the qualifications and suitability of the Purchaser
to conduct or to perform professional services on behalf of the PC and the terms
and conditions of such proposed sale to the Purchaser. If the sale of such
Capital Stock represents twenty five (25%) percent or less of the Capital Stock,
then, unless the MSO or OMEGA reasonably believes such Purchaser to be
unacceptable, such transfer shall not constitute a Transfer Event. If such sale
is greater the twenty five (25%) percent of the Capital Stock then upon receipt
of such Notice, the Successor Designation Option of the MSO shall become
exercisable for a period of three (3) months, provided however, that the
exercise price and terms of purchase of the Capital Stock shall be no less
favorable to Xx. Xxxxxxxxxxx than those set forth in the Notice of Sale. In the
event the Successor Designation Option is not exercised during such three (3)
month period, Xx. Xxxxxxxxxxx may sell the Capital Stock to the Purchaser upon
the terms and conditions set forth in the Notice of Sale, provided however, that
such sale shall be conditioned: (i) upon the Purchaser joining in this Agreement
and entering into an employment agreement with the PC on such terms and
conditions as may be approved by the MSO, and (ii) upon Xx. Xxxxxxxxxxx
executing a Non-Competition Agreement in the form attached hereto as Exhibit C.
9. Assignment of the Successor Designation Option The Successor
Designation Option may be assigned by the MSO or any assignee of the MSO to
OMEGA or to a duly licensed orthodontist, by a written assignment, signed by
both the MSO and the assignee. When the context so requires in this Agreement,
the term "MSO" shall be deemed to refer to an assignee holding an assignment of
the Successor Designation Option with respect to such Capital Stock, and the
terms "party" and "parties" shall be deemed to include
10. Purchase Price of the Capital Stock.
(a) The purchase price ("Purchase Price") due and payable by
the Designated Successor upon exercise of the Successor Designation Option shall
be an amount equal to the product of (a) the aggregate net amount received by
the PC pursuant to Article 6 and Schedule 3 of the Management Services Agreement
for the twelve (12) calendar months immediately preceding the month in which the
Successor Designation Exercise Notice is delivered to Xx. Xxxxxxxxxxx (or his
successor or representative) multiplied by (b) a fraction, the numerator of
which is the number of shares of the Capital Stock to be purchased and the
denominator of which is the total number of shares of the Capital Stock
outstanding at the time of such purchase.
(b) Payment of Purchase Price. The Purchase Price upon
exercise of the Successor Designation Option shall be paid by the Designated
Successor executing a negotiable promissory note, secured by the Capital Stock
of Xx. Xxxxxxxxxxx. The note shall be for a term of five years, with interest
payable quarterly in arrears at the mid-term Applicable Federal Rate with
monthly compounding published by the Internal Revenue Service from time to time
in accordance with Section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision of the Code, provided however,
that the Designated Successor shall be permitted to prepay such note at any
time. Principal shall be payable in five equal annual installments commencing
six months after the closing date.
(c) Purchase From Xx. Xxxxxxxxxxx'x Estate.
(i) Upon the death of Xx. Xxxxxxxxxxx and receipt of
notice of a Successor Designation Exercise Notice, Xx.
Xxxxxxxxxxx'x personal representative shall apply for and
obtain any necessary court approval or confirmation of the
sale of Xx. Xxxxxxxxxxx'x shares of Capital Stock pursuant
to this Agreement. The representative of the estate of Xx.
Xxxxxxxxxxx and the Designated Successor shall complete such
sale as soon after the date of death as practicable, but no
later than 180 days after such event.
(ii) The death of Xx. Xxxxxxxxxxx'x spouse, if any,
shall not be considered the death of Xx. Xxxxxxxxxxx for
purposes of this Agreement.
(iii) The estate of Xx. Xxxxxxxxxxx shall bear, and
hold the PC harmless from, all costs and expenses incurred
as a result of securing any court orders, court decrees,
court approvals or inheritance tax clearances required to
enable the estate of Xx. Xxxxxxxxxxx to transfer to the
Designated Successor full legal and equitable tax-free title
to the Capital Stock of Xx. Xxxxxxxxxxx.
(d) Other Purchases. Except for purchases of Capital Stock
upon exercise of the Successor Designation Option pursuant to Section 5(a)(i)
hereof, all other purchases of Capital Stock pursuant to such Option shall close
thirty (30) days after the date of any Successor Designation Exercise Notice,
unless extended by the parties.
11. Insurance.
(a) In order to insure the MSO's interest in the Management
Services Agreement and under this Agreement, Xx. Xxxxxxxxxxx hereby consents to
the acquisition and maintenance in force of a disability insurance policy and a
life insurance policy by the MSO and OMEGA on Xx. Xxxxxxxxxxx ("Insurance
Policies"). The life insurance policy may be in an aggregate face amount of up
to three times Xx. Xxxxxxxxxxx'x income, as shown on the W-2 Form prepared by
the PC for the most recent calendar year. Xx. Xxxxxxxxxxx agrees, at the
election of the MSO and OMEGA, to take whatever actions are necessary to assist
in the acquisition of any such Insurance Policy by the MSO and OMEGA.
(b) The Insurance Policies shall name the MSO and OMEGA as
sole owner and beneficiary of such policies.
(c) As long as the Insurance Policies provided for herein are
in full force and effect, the MSO and OMEGA shall pay all premiums falling due
on all such policies. Such payments shall be made by the MSO or OMEGA and shall
not be considered MSO expenses pursuant to this Agreement.
(d) No insurance company that has issued or shall issue an
Insurance Policy or Policies to the MSO as permitted under this Agreement shall
be under any obligation with respect to the performance of the terms and
conditions of this Agreement. Any such company shall be bound only by the terms
of the Insurance Policy or Policies which it has issued or shall hereafter issue
and shall have no liability except as set forth in its policies.
12. Representations. The PC and Xx. Xxxxxxxxxxx each represent and
warrant to the MSO and OMEGA that as of the day and year first above written and
during the term of this Agreement, Exhibit A is a true and complete listing of
the Capital Stock, as revised from time to time pursuant to this Agreement.
13. Restriction on Transfer.
(a) Except to the extent and in the manner provided in this
Agreement or with the express prior written consent of the MSO which may be
granted or withheld in its absolute discretion, Xx. Xxxxxxxxxxx shall not sell,
assign, transfer, pledge or otherwise dispose (including by gift or otherwise)
of any of his shares of the Capital Stock.
(b) Issuance of Stock; Change in Ownership; Mergers and
Consolidation. Without the prior written consent of the MSO, Xx. Xxxxxxxxxxx
shall not permit the PC to, and the PC shall not, during the term of this
Agreement, issue any stock, other equity, or debt of the PC; permit any change
in the composition or respective percentage ownership of the PC; merge,
consolidate or otherwise reorganize with or into any other corporation,
partnership, trade, business, or the like; amend or otherwise modify its
articles of incorporation or bylaws; dissolve; or enter into any agreement with
any person to do any of the foregoing without the prior written consent of the
MSO.
14. Delivery of Stock Power. Upon execution of this Agreement, Xx.
Xxxxxxxxxxx shall execute and deliver to Xxxxxxx M/ Xxxxxxxxx, Esq., Encino
Office Park, Building II, 0000 Xxxxxx Xxxx., Xxxxx 000, Xxxxxx, XX 00000-0000,
as escrow agent (the "Escrow Agent"), a sufficient number of assignments
separate from certificates, endorsed in blank to cover all of the Stock (the
"Stock Power") held of record or beneficially owned by Xx. Xxxxxxxxxxx, with
copies provid3ed to the MSO. Upon execution of this Agreement, Xx. Xxxxxxxxxxx
shall deliver to the Escrow Agent all certificates heretofore issued
representing all of the shares of Capital Stock held of record or beneficially
owned by Xx. Xxxxxxxxxxx. Each such certificate shall have affixed to the back
of the certificate a legend substantially as follows:
"The rights of any holder of any share evidenced by this certificate,
including the right to dispose of the securities represented by this
certificate or any interest therein, are subject to and restricted by a
certain Stock Put/Call Option and Successor Designation Agreement,
dated as of August, ___, 1998, among the PC, the holder hereof and the
MSO and OMEGA (as defined therein). The PC will mail without charge to
any holder of these shares a copy of such agreement within five (5)
days of receipt by the PC of a written request therefor."
Upon any exercise of the Successor Designation Option by the MSO, the
Escrow Agent shall deliver the Stock Powers and the certificates representing
all of the shares of Capital Stock held of record or beneficially owned by Xx.
Xxxxxxxxxxx to the MSO and the MSO (and/or the Designated Successor) shall be
authorized to complete the Stock Powers, attach them to the certificates and
tender the same to the transfer agent for the PC for reissuance in the name of
the Designated Successor. Upon any termination of this Agreement without
exercise of the Successor Designation Option, the Escrow Agent shall return all
such Stock Powers and certificates to Xx. Xxxxxxxxxxx.
15. Confidentiality. The parties shall use all good faith efforts to
keep the contents of this Agreement and all other aspects of the negotiations
preceding execution of this Agreement confidential. Unless required by law, the
PC, Xx. Xxxxxxxxxxx, and the MSO and OMEGA shall not disclose the contents of
this Agreement or the negotiations leading to this Agreement to third parties
without the prior written consent of the other parties. The MSO shall ensure
that all of the assignees likewise comply with the obligations of
confidentiality imposed by this Section, except that the MSO and the assignees
may disclose the contents of such to the extent required by law or otherwise to
their respective agents, representatives, contractors, and employees to the
extent necessary to exercise their respective rights or perform their respective
obligations hereunder.
16. Term. The term of this Agreement shall commence as of the day and
year first above written and shall terminate upon the termination of the
Management Services Agreement or the exercise (and consummation of the
transaction provided for upon such exercise) of the Put Option, the Call Option
or the Successor Designation Option as to all of the Capital Stock, as the case
may be (the "Term").
17. General
(a) Compliance with Law. The PC and Xx. Xxxxxxxxxxx shall
comply with all applicable requirements of applicable state law and regulations,
and other licensing and accreditation authorities.
(b) Relationship of Parties. In the exercise of their
respective rights and the performance of their respective obligations under this
Agreement, the PC and Xx. Xxxxxxxxxxx on the one hand and OMEGA and the MSO (or
any assignee of the MSO) on the other hand are acting in the capacity of the
grantor and grantee of an option to purchase or to designate the purchase of
shares of Capital Stock and nothing in this Agreement is intended nor shall be
construed to create an employer/employee, partnership, joint venture or a
landlord/tenant relationship between or among the parties.
(c) Assignment. The rights and duties of the parties under
this Agreement may not be assigned or transferred without the prior written
consent of the non-assigning party, which consent shall not be unreasonably
withheld; provided, however, that the MSO and OMEGA shall be permitted to assign
its and their respective rights and duties hereunder without the consent of Xx.
Xxxxxxxxxxx or the PC to any person, firm or corporation controlled by the MSO
or OMEGA, controlling the MSO or OMEGA or under common control with the MSO or
OMEGA or to such financing institutions as may be required by the terms of
credit agreements which may be entered into from time to time by Omega for the
obtaining of addition financing for Omega.
(d) Counterparts. This Agreement, and any amendments thereto,
may be executed in counterparts, each of which shall constitute an original
document, but which together shall constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Any notice or other communication in connection
with this Agreement shall be deemed to be delivered if in writing (or in the
form of a telegram or facsimile transmission) addressed as provided below and if
either (a) actually delivered at said address, or (b) in the case of a letter,
three business days shall have elapsed after the same shall have been deposited
in the United States mail, postage prepaid and registered or certified, return
receipt requested, or sent by reputable overnight courier:
If to Xx. Xxxxxxxxxxx, to:
XXXXX X. Xxxxxxxxxxx, D.D.S., M.S., Inc.
Xxxxx X. Xxxxxxxxxxx, D.D.S.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx Xxxxx, Xxxxxxxxxx 00000
If to the OMEGA, to:
Omega Orthodontics, Inc.
0000 Xxxxxx Xxxx Xxxx
Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxxxx
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(h) Amendment. This Agreement may be amended at any time by
agreement of the parties, provided that any amendment shall be in writing and
executed by the parties.
(i) Severability. If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions will nevertheless continue in full force and
effect.
(j) Fees and Expenses. The PC, Xx. Xxxxxxxxxxx and the MSO and
OMEGA each shall bear their own expenses, including, without limitation,
attorneys' and accountants' fees, incurred in connection with the preparation of
this Agreement and the transactions contemplated hereby.
(k) Exhibits and Schedules. All attachments and schedules
attached to this Agreement are incorporated herein by this reference and all
references herein to "Agreement" shall mean this Agreement together with all
such exhibits and schedules.
(l) Time of Essence. Time is expressly made of the essence of
this Agreement in each and every provision hereof of which time of performance
is a factor.
(m) Attorneys' Fees. Should any of the parties hereto
institute any action or proceeding to enforce this Agreement or any provision
hereof (including without limitation, arbitration), or for damages by reason of
any alleged breach of this Agreement or of any provision hereof, or for a
declaration of rights hereunder (including, without limitation, by means of
arbitration), the prevailing party in any such action or proceeding shall be
entitled to receive from the other party all costs and expenses, including,
without limitation, reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
(n) Further Assurances. The parties shall take such actions
and execute and deliver such further documentation as may reasonably be required
in order to give effect to the transactions contemplated by this Agreement and
the intentions of the parties hereto.
(o) Remedies. The remedies specified in this Agreement are the
exclusive remedies for liabilities of the parties arising under this Agreement.
The limitations on liability, releases from liability, and waiver and indemnity
provisions expressed in this Agreement shall apply to the full extent permitted
by law, even in the event of a parties' fault, negligence (in whole or in part),
strict liability, or other basis of liability, and whether liability is founded
in contract, tort, or otherwise, and shall extend to the parties and its
affiliated companies and its and their shareholders, directors, officers and
employees.
18. Notwithstanding anything to the contrary contained in this
Agreement, or any Schedule or Exhibit hereto, in no event shall the MSO or OMEGA
or their officers, directors or employees be liable for any form of indirect,
special, incidental or consequential damages, whether such damages arise in
contract or tort, irrespective of fault, negligence or strict liability.
19. Dispute Resolution.
Any dispute which arises as a result of this Agreement shall be settled
in accordance with the terms set forth in Article 14 of the Management Services
Agreement executed on even date herewith.
IN WITNESS WHEREOF, the PC, Xx. Xxxxxxxxxxx, MSO and OMEGA have executed this
Agreement as of the date first above written by their duly authorized
representatives as set forth below.
"PC"
XXXXX X. XXXXXXXXXXX, D.D.S., M.S., Inc.
an California corporation
By: ______________________________
Xxxxx X. Xxxxxxxxxxx, D.D.S., President
XX. XXXXXXXXXXX
______________________________
Xxxxx X. Xxxxxxxxxxx, D.D.S.,
"MSO"
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
a Delaware corporation
By: ______________________________
Xxxxxx X. Xxxxxxxx, President
"OMEGA"
OMEGA ORTHODONTICS, INC.,
a Delaware corporation
By:_______________________________
Xxxxxx X. Xxxxxxxx, President and
Chief Executive Officer
SPOUSAL JOINDER AND CONSENT
I am the spouse of Xxxxx X. Xxxxxxxxxxx, D.D.S., the sole Stockholder
of Xxxxx X. Xxxxxxxxxxx, D.D.S., M.S., Inc. To the extent that I have any
interest in any of the Capital Stock (as that term is defined in the Stock
Put/Call Option and Successor Designation Agreement), I hereby join in such
Agreement and agree to be bound by its terms and conditions to the same extent
as my spouse. I have read the Stock Put/Call Option and Successor Designation
Agreement, understand its terms and conditions, and to the extent that I have
felt it necessary, I have retained independent legal counsel to advise me
concerning the legal effect of this Stock Put/Call Option Agreement and this
Spousal Joinder and Consent.
I understand and acknowledge that each of the MSO and OMEGA is significantly
relying on the validity and accuracy of this Spousal Joinder and Consent in
entering into this Stock Put/Call Option and Successor Designation Option
Agreement.
Executed this day of August, 1998.
Signature:
Printed or Typed Name: Xxxxxxxx X. Xxxxxxxxxxx
EXHIBIT A
ORTHODONTIC OFFICES
The offices and related leasehold improvements constituting the Orthodontic
Offices are located at 000 Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxx Xxxxx,
Xxxxxxxxxx 00000 ("Huntington Beach") and 5251 and 0000 Xxxxxxx Xxx., Xxxxxx
Xxxxx, Xxxxxxxxxx ("Garden Grove").
EXHIBIT B
STOCK
The authorized capital stock of the PC is ______ shares of common
stock, $0.00 par value per share. _______ shares of the common stock of the PC
are issued and are outstanding, all of which shares are evidenced by Certificate
No. 1 issued in the name of Xxxxx X. Xxxxxxxxxxx, D.D.S.
EXHIBIT C
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is made as of this _____ day of
August, 1998 by and between Xxxxx X. Xxxxxxxxxxx, D.D.S., ("Xx. Xxxxxxxxxxx"),
who is duly licensed to practice orthodontics in the state of California, and
Xxxxx X. Xxxxxxxxxxx, D.D.S. M.S., Inc., a professional corporation (the "PC")
incorporated under the laws of the State and Omega Orthodontics of Woodland
Hills, Inc., a Delaware Corporation.
All capitalized terms used herein and not otherwise expressly defined
shall have the same meanings set forth in that certain Stock Put/Call Option and
Successor Designation Agreement ("Stock Agreement") dated August ___, 1998 by
and among Xx. Xxxxxxxxxxx, the PC, Omega Orthodontics, Inc., a Delaware
corporation ("Omega") and Omega Orthodontics of Woodland Hills Inc., a Delaware
corporation (the "MSO") which is a wholly owned subsidiary of Omega.
RECITALS
A. Xx. Xxxxxxxxxxx is the sole owner of the Capital Stock of the PC and
desires to transfer all of his right, title and interest in and to such Capital
Stock pursuant to Section 8 of the Stock Agreement to the Purchaser.
B. The Purchaser has agreed to join the Stock Agreement and to enter
into an employment agreement with the PC on terms and conditions acceptable to
and approved by the MSO.
C. As a condition to the transfer by Xx. Xxxxxxxxxxx of his Capital
Stock to the Purchaser pursuant to Section 8 of the Stock Agreement, Xx.
Xxxxxxxxxxx has agreed to enter into an agreement in the form of this Agreement
to be delivered to the PC upon the closing of the transfer of his Capital Stock
pursuant to Section 8 of the Stock Agreement.
NOW, THEREFORE, in consideration of the foregoing promises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
1. Xx. Xxxxxxxxxxx'x Covenants. During the term of this Agreement in
the Service Area described in Section 4 below, Xx. Xxxxxxxxxxx shall not
(directly or indirectly through any business, enterprise, venture, partnership,
corporation or any other entity controlled directly or indirectly by Xx.
Xxxxxxxxxxx, whether alone or as a partner, stockholder, creditor or otherwise):
(a) Provide orthodontic or other dental services, or engage,
participate, aid, assist, or hold any interest in any business or the provision
of any managed care plan service which is, or as of Xx. Xxxxxxxxxxx 's
engagement or participation, would become, competitive with the PC's orthodontic
practice business;
(b) Engage or contract (other than with the MSO or any of the
MSO's affiliates) for the provision of any management services for Xx.
Xxxxxxxxxxx or any person employed or under contract to Xx. Xxxxxxxxxxx (as
applicable) which are the same as or substantially similar to any of the
services that the MSO or any of the MSO's affiliates furnishes;
(c) Solicit or assist any other person to solicit any business
relating to a competing line of business (other than for the PC or any of its
affiliates) from any present or potential patient, customer (including all third
party payors) of Xx.
Xxxxxxxxxxx, the PC or any of their respective affiliates;
(d) Commit any other act or assist others to commit any other
act which might injure the business of the PC, the MSO or any of their
respective affiliates;
(e) Directly or indirectly employ, contract, solicit or
encourage any employee or other person under contract with the PC, the MSO or
any of their respective affiliates to leave the employ of any such entity; and
(f) Directly or indirectly solicit, request, advise, or
encourage any present or future supplier, patient, customer or employee of the
PC, the MSO or their respective affiliates to withdraw, curtail or cancel its
business dealings with the PC, the MSO or their respective affiliates, or take
any actions that might impair the relations of the PC, the MSO or any of their
respective affiliates and their respective suppliers, patients, customers,
employees or others.
2. Xx. Xxxxxxxxxxx'x Representations. Xx. Xxxxxxxxxxx specifically
acknowledges, represents, and warrants that: (i) his covenants set forth in this
Agreement are being given in connection with the sale of the Capital Stock to
the Purchaser pursuant to Section 8 of the Stock Agreement; (ii) such covenants
are reasonable and necessary to protect the legitimate interests of the PC, the
MSO and Omega; and (iii) the PC, the MSO and Omega would not have consented to
such sale in the absence of such restrictions. Xx. Xxxxxxxxxxx acknowledges that
this Agreement is subject to all representations, warranties and covenants of
Xx. Xxxxxxxxxxx in the Stock Agreement.
3. Service Area. The Service Area to which Xx. Xxxxxxxxxxx 's covenants
in Section 1 apply is defined as the area within a fifteen (15) mile radius (or
the maximum radius permitted by law, if less) of each orthodontic office or
other facility owned, operated or managed by Xx. Xxxxxxxxxxx, the PC, the MSO,
Omega or their respective affiliates now existing or hereafter established.
4. Term. The term of this Agreement commences as of the day and year
first above written and continues for twenty-four (24) months.
5. Payment. As consideration for Xx. Xxxxxxxxxxx 's agreement not to
compete and other covenants herein, the PC shall pay Xx. Xxxxxxxxxxx upon the
execution of this Agreement by the PC the amount of One Thousand Dollars
($1,000).
6. Remedies. In the event of a breach by Xx. Xxxxxxxxxxx of this
Agreement, the PC shall be entitled to receive, on behalf of the MSO, from Xx.
Xxxxxxxxxxx, in addition to other remedies and not by way of an election of
remedies, liquidated damages equal in amount to the greater of (a) Xx.
Xxxxxxxxxxx 's income, as shown on the W-2 form prepared by the PC for the most
recent calendar year or (b) $300,000. Any amounts received by the PC pursuant to
the prior sentence shall be paid to the MSO by the PC immediately following
receipt by the PC. Should a court fail to enforce the liquidated damages
provision set forth in the first sentence of this Section 6, the parties
acknowledge and agree that, absent such liquidated damages, a breach by Xx.
Xxxxxxxxxxx of this Agreement will cause irreparable damage to the PC, the exact
amount of which will be difficult to ascertain, and that remedies at law for any
such breach will be inadequate. Accordingly, Xx. Xxxxxxxxxxx agrees that in such
case, the PC shall be entitled to injunctive relief and Xx. Xxxxxxxxxxx agrees
not to assert in any proceeding that the PC has an adequate remedy at law. Xx.
Xxxxxxxxxxx shall pay the reasonable fees and expenses, including attorneys
fees, incurred by the PC or any successor or assign in enforcing this Agreement.
7. Third Party Beneficiaries. The parties expressly understand and
agree that the MSO and Omega are third party beneficiaries of this Agreement and
shall be entitled to all of the rights and remedies provided herein to the PC
and shall be entitled to enforce the terms of this Agreement.
8. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective heirs
(as applicable), legal representatives, and permitted successors and assigns. No
party may assign this Agreement or the rights, interests or obligations
hereunder; provided, however, that the PC may assign its rights, interests and
obligations to the MSO, Omega and their affiliates without the consent of Xx.
Xxxxxxxxxxx. Any assignment or delegation in contravention of this Section shall
be null and void.
(b) Counterparts. This Agreement, and any amendments thereto,
may be executed in counterparts, each of which shall constitute an original
document, but which together shall constitute one and the same instrument.
(c) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) Amendment. This Agreement may not be amended except in a
writing executed by all parties.
(e) Time of Essence. Time is expressly made of the essence of
this Agreement and each and every provision hereof of which time of performance
is a factor.
(f) Notices. Any notices required or permitted to be given
hereunder by any party to the other shall be in writing and shall be deemed
delivered upon personal delivery; twenty-four (24) hours following deposit with
a courier for overnight delivery; or seventy-two (72) hours following deposit in
the U.S. Mail, registered or certified mail, postage prepaid, return-receipt
requested, addressed to the parties at the following addresses or to such other
addresses as the parties may specify in writing:
If to Xx. Xxxxxxxxxxx: Xx. Xxxxx X. Xxxxxxxxxxx, D.D.S.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx Xxxxx, Xxxxxxxxxx 00000
If to the PC: Xx. XXXXX X. Xxxxxxxxxxx, D.D.S., M.S., INC.
Xx. Xxxxx X. Xxxxxxxxxxx, D.D.S.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx Xxxxx, Xxxxxxxxxx 00000
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(h) Severability. If any provision or portion of this
Agreement is held by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Agreement will nevertheless continue in
full force and effect and shall not be invalidated or rendered unenforceable or
otherwise adversely affected, unless such invalidity or unenforceability would
defeat an essential business purpose of this Agreement. Without limiting the
generality of the foregoing, if the provisions of this Agreement shall be deemed
to create a restriction, which is unreasonable as to either duration or
geographical area or both, the parties agree that the provisions of this
Agreement shall be enforced for such duration and in such geographic area as any
court of competent jurisdiction on may determine to be reasonable.
(i) Attorneys' Fees. Should either the PC or Xx. Xxxxxxxxxxx
institute any action or procedure to enforce this Agreement or any provision
hereof, or for damages by reason of any alleged breach of this Agreement or of
any provision hereof, or for a declaration of rights hereunder (including
without limitation arbitration), the prevailing party in any such action or
proceeding shall be entitled to receive from the other party all costs and
expenses, including without limitation reasonable attorneys' fees, incurred by
the prevailing party in connection with such action or proceeding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of the day
and year first written above.
"PC"
Xxxxx X. Xxxxxxxxxxx, D.D.S., M.S., Inc.
an California corporation
By: ______________________________
Xxxxx X. Xxxxxxxxxxx, D.D.S., President
XX. XXXXXXXXXXX
______________________________
Xxxxx X. Xxxxxxxxxxx, D.D.S.,
ACKNOWLEDGED BY:
"MSO"
OMEGA ORTHODONTICS OF WOODLAND HILLS, INC.
a Delaware corporation
By: ______________________________
Xxxxxx X. Xxxxxxxx, President
