SETTLEMENT AGREEMENT AND RELEASE
EXHIBIT 10.3
SETTLEMENT AGREEMENT AND RELEASE
THIS SETTLEMENT AGREEMENT AND RELEASE (this “Agreement” ), dated as of September 10,
2009 (for reference purposes only), is entered into to be effective as of September 14, 2009 (the
“Effective Date”) by and between XXXXXX X. XXXXXX, M.D., P.C. D/B/A SLEEP MEDICINE CENTERS
OF WESTERN NEW YORK, a New York professional corporation (the “Xxxxxx PC”), SLEEP MEDICINE
CENTERS OF FLORIDA, LLC, a Florida limited liability company (“SMCF”), and XXXXXX X.
XXXXXX, M.D. (“Xxxxxx,” and together with the Xxxxxx PC and SMCF, “Releasors”),
AVASTRA EASTERN SLEEP CENTERS, INC., a New York corporation (“Eastern”), SDC HOLDINGS, LLC,
an Oklahoma limited liability company (“SDC”), and GRAYMARK HEALTHCARE, INC., an Oklahoma
corporation (“Graymark”), with regard to the following circumstances:
A. Releasors, Eastern and Avastra Sleep Centres Limited (in liquidation) f/k/a Avastra Ltd.,
an Australian corporation (“Avastra”), are parties to that certain Asset Purchase Agreement
dated October 10, 2007, as amended by that certain First Addendum to Asset Purchase Agreement,
dated October 12, 2007 (the “Purchase Agreement”).
B. The Purchase Agreement was further amended by the First Amendment to October 10, 2007 Asset
Purchase Agreement, dated May 2, 2008 (the “Amendment”).
C. Pursuant to the Amendment, Avastra and Eastern (i) issued a Promissory Note in favor of
Xxxxxx in the amount of $807,068 to evidence a portion of the earn-out obligations of Avastra and
Eastern under the Purchase Agreement (the “Note”) and (ii) granted a security interest in
certain accounts receivable of Eastern to secure the obligations of Avastra and Eastern under the
Note. The Purchase Agreement, the First Amendment, and the Note are collectively referred to
herein as the “Acquisition Documents”.
D. In connection with the transactions contemplated by the Acquisition Documents, Xxxxxx and
Eastern entered into that certain Executive Employment Agreement, dated October 12, 2007 (as
amended from time to time, the “Employment Agreement”).
E. SDC, Avastra, and AvastraUSA, Inc., a Delaware corporation (“AvastraUSA”), have
entered into that certain Stock Sale Agreement, dated August 19, 2009 (as amended from time to
time, the “SSA”), pursuant to which SDC will acquire all of the issued and outstanding
stock of Eastern from AvastraUSA (the “Eastern Stock”).
F. In connection with and as a condition to the acquisition of the Eastern Stock by SDC,
Releasors and SDC desire to settle all obligations of Avastra and Eastern under the Acquisition
Documents.
G. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants
contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Liquidated Payment. In complete satisfaction of all obligations of Avastra and
Eastern under the terms of the Acquisition Documents, SDC shall (a) deliver to Releasors 100,000
shares of common stock of Graymark, in the name of Xxxxxx (the “Stock Consideration”) and (b) pay
Releasors $2,000,000 by wire transfer to the account set forth on Exhibit A (together with the
Stock Consideration, the “Liquidated Payment”).
2. Recapture of Liquidated Payment.
2.1 (a) In addition to and not in limitation of any other remedies available to Eastern at
law or in equity, if at any time prior to the six-month anniversary of the Effective Date (the
“First Recapture Date”) (i) Eastern terminates (A) the Employment Agreement for Cause (as such term
is defined in the Employment Agreement) or (B) the Management Services Agreement by and between the
Xxxxxx PC and Eastern, dated as of the date hereof, pursuant to Section 16 of such agreement or
(ii) if Xxxxxx voluntarily terminates the Employment Agreement, Releasors shall jointly and
severally pay to SDC the full amount of the Liquidated Payment.
(b) In addition to and not in limitation of any other remedies available to Eastern at law or
in equity, if at any time during the six-month period following the First Recapture Date (i)
Eastern terminates (A) the Employment Agreement for Cause (as such term is defined in the
Employment Agreement) or (B) the Management Services Agreement by and between the Xxxxxx PC and
Eastern, dated as of the date hereof, pursuant to Section 16 of such agreement or (ii) if Xxxxxx
voluntarily terminates the Employment Agreement, Releasors shall jointly and severally pay to SDC
$1,000,000 of the Liquidated Payment.
3. Lock-Up. Releasors irrevocably agree that during the six (6) month period
following the Effective Date, without the prior written consent of Graymark, Releasors will not
have the right to, directly or indirectly: (a) offer for sale, sell or otherwise dispose of (or
enter into any transaction or device that is designed to, or could be expected to, result in the
disposition at any time in the future of) any portion of the Stock Consideration or (b) publicly
disclose the intention to do any of the foregoing.
4. Assignment of Accounts Receivable. As partial consideration for the Liquidated
Payment, Releasors hereby assign to Eastern all of their right, title and interest in and to the
accounts receivable generated from the sleep diagnostic testing and other operations of Releasors
prior to the Effective Date.
5. Release. Upon receipt of the Liquidated Payment and regardless of any recapture of
the Liquidated Payment pursuant to Section 2, each of Releasors shall on behalf of itself and each
of its affiliates, beneficiaries, heirs, successors, and assigns (“Related Persons”), (a)
release any and all rights in and to the accounts receivable of Eastern including the security
interest evidenced by the Financing Statement filed July 17, 2008 (Filing No. 200807170504435)
with the Secretary of State of New York and (b) release and forever discharge Eastern, Avastra,
AvastraUSA, SDC, Graymark and each of their respective officers, directors, stockholders, members,
managers, administrators, liquidators appointed, affiliates, successors and assigns (individually,
each a “Releasee” and collectively, “Releasees”) from any and all obligations under
the Acquisition Documents and any and all other causes of actions, actions, choses in actions,
suits, benefits, rights, claims, and demands of whatsoever kind or nature, in law or equity,
whether known or unknown, suspected or unsuspected, which such Releasor or any of such Related
Persons has against the respective Releasees arising on or prior to the Effective Date
(collectively, “Claims”).Release. Upon receipt of the Liquidated Payment and regardless of
any recapture of the Liquidated Payment pursuant to Section 2, each of Releasors shall on behalf of
itself and each of its affiliates, beneficiaries, heirs, successors, and assigns (“Related
Persons”), (a) release any and all rights in and to the accounts receivable of Eastern including
the security interest evidenced by the Financing Statement filed July 17, 2008 (Filing No.
200807170504435) with the Secretary of State of New York.
6. Covenant. Each of Releasors, jointly and severally, covenants to refrain from
asserting any Claim, or commencing, instituting or causing to be commenced, any proceeding of any
kind against any Releasee, based upon any matter released hereby.
7. Releasors’ Representations and Warranties. Each of Releasors, jointly and
severally, represents and warrants to SDC, Eastern and Graymark as follows:
(a) No Releasor has assigned any Claim (or any part thereof) and that it is unaware of any
individual or entity asserting an interest or right in or with respect to any Claims.
(b) The common stock of Graymark being acquired pursuant to this Agreement (the “Stock
Consideration”) will be acquired for Releasors’ own accounts without the participation of any
other person, with the intent of holding the Stock Consideration for investment and without the
intent of participating, directly or indirectly, in a distribution of the Stock Consideration and
not with a view to, or for resale in connection with, any distribution of the Stock Consideration.
(c) Releasors have such knowledge and experience in financial, tax and business matters as to
be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an
investment in Graymark and of protecting its interests in connection with this transaction.
Releasors recognize and acknowledge that an investment in Graymark involves a high degree of risk.
Releasors are able to bear the economic risks of the investment in the Stock Consideration,
including the risk of a complete loss of the value of the Stock Consideration.
(d) Releasors have had adequate opportunity to review Graymark’s reports filed with the
Securities and Exchange Commission (the “Graymark SEC Reports”) and to ask questions of and
receive answers from Graymark with respect to the information contained in the Graymark SEC
Reports.
(e) Releasors acknowledge that neither Graymark nor any of its agents, employees or affiliates
has made any representations or warranties, oral or otherwise, concerning Graymark, other than
those contained in the Graymark SEC Reports. In making the decision to accept Stock Consideration
as a portion of the Liquidated Payment, Releasors did not rely upon any information other than the
results of Releasors’ independent review of the Graymark SEC Reports.
(f) Releasors understand and agree that the Stock Consideration will be issued to Releasors
without registration under any state law relating to the registration of securities for sale, and
will be issued and sold in reliance on the exemptions from registration under the Securities Act of
1933, as amended (the “Securities Act”), provided by Section 4(2) thereof and the rules and
regulations promulgated thereunder.
(g) The Stock Consideration cannot be offered for sale, sold or transferred by Releasors other
than pursuant to: (i) (A) an effective registration under the Securities Act, or (B) an exemption
from registration under the Securities Act; (ii) evidence satisfactory to Graymark of compliance
with the applicable securities laws of other jurisdictions; and (iii) the restrictions on sale
contained in Section 3 of this Agreement. Graymark shall be entitled to rely upon an opinion of
counsel satisfactory to it with respect to compliance with the above laws.
(h) Releasors understand that there will be placed on the certificates for the Stock
Consideration, or any substitution therefor, in addition to any other legend which may be required,
a legend stating in substance:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER THE SECURITIES ACT OF ANY OTHER STATE, AND THE
SHARES MAY NOT BE RESOLD, ASSIGNED OR TRANSFERRED BY A PURCHASER THEREOF WITHOUT
BEING REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER APPLICABLE STATE
SECURITIES LAW OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE IN THE OPINION
OF COUNSEL TO THE COMPANY.
FURTHERMORE, THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A
SETTLEMENT AGREEMENT AND RELEASE DATED SEPTEMBER 10, 2009, A COPY OF WHICH MAY BE
INSPECTED AT THE COMPANY’S PRINCIPAL OFFICE.
8. Representations of Graymark. Graymark hereby represents and warrants to Releasors
that:
(a) The Stock Consideration has been duly authorized and, when issued in accordance with this
Agreement, will be validly issued, fully paid, and nonassessable.
(b) Graymark has filed all Graymark SEC Reports required to be filed with the Securities and
Exchange Commission and as of their respective dates, such Graymark SEC Reports complied in all
material respects with the applicable securities laws. As of their respective dates, none of the
Graymark SEC Reports contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, except for such statements, if
any, as have been corrected by subsequent filings with the Securities and Exchange Commission.
9. Severability. If any provision of this Agreement is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this Agreement will remain in full
force and effect. Any provision of
this Agreement held invalid or unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.
10. Arbitration. In the event of any dispute or any action or proceeding arising under
or in connection with this Agreement, the parties shall resolve such dispute only by arbitration
with a single arbitrator, conducted in Chicago, Illinois, by the American Arbitration Association
pursuant to its Commercial Arbitration
Rules. Notwithstanding the choice of law provisions set
forth in Section 11, the Federal Arbitration Act shall govern all proceedings brought hereunder.
11. Governing Law. This Release shall be governed by and construed under the laws of
the State of New York without regard to conflicts of laws principles thereof.
12. Successors and Assigns; Third Party Beneficiaries. This Agreement is binding upon
and inures to the benefit of the parties and their respective successors, heirs, and permitted
assigns. Notwithstanding anything to the contrary herein, each of the Releasees that are not a
party to this Agreement are specifically and expressly made third party beneficiaries of this
Agreement.
13. Counterparts. This Amendment may be executed in any number of counterparts. A
counterpart may be a facsimile or an electronic copy. Together all counterparts shall constitute
one document.
14. Entire Agreement. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior agreements,
understandings and negotiations, both written and oral between the parties with respect to the
subject matter of this Agreement.
[Signature Pages to Follow]
IN WITNESS WHEREOF, the parties have duly executed this Settlement Agreement and Release as of
the Effective Date.
| XXXXXX PC: | XXXXXX X. XXXXXX, M.D., P.C. |
|||
| By | /S/ XXXXXX X. XXXXXX, M.D. | |||
| Name: | Xxxxxx X. Xxxxxx, M.D. | |||
| Title: | President | |||
| SMCF: | SLEEP MEDICINE CENTERS OF FLORIDA, LLC |
|||
| By | /S/ XXXXXX X. XXXXXX, M.D. | |||
| Name: | Xxxxxx X. Xxxxxx, M.D. | |||
| Title: | President | |||
| XXXXXX: | /S/ XXXXXX X. XXXXXX, M.D. | |||
| Xxxxxx X. Xxxxxx | ||||
| EASTERN: | AVASTRA EASTERN SLEEP CENTERS, INC. |
|||
| By | /S/ XXXXXX X. XXXXXX, M.D. | |||
| Name: | Xxxxxx X. Xxxxxx, M.D. | |||
| Title: | President | |||
| GRAYMARK: | GRAYMARK HEALTHCARE, INC. |
|||
| By | /S/ XXXXXXX XXXXXX | |||
| Name: | Xxxxxxx Xxxxxx | |||
| Title: | CEO | |||
| SDC: | SDC HOLDINGS, LLC |
|||
| By | /S/ XXXXXXX XXXXXX | |||
| Name: | Xxxxxxx Xxxxxx | |||
| Title: | CEO | |||
