EXHIBIT 10.11
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SERVICE AGREEMENT
DATED AS OF THE ____ DAY OF ________________, 1997
BY AND BETWEEN
APPLE ORTHODONTIX, INC.
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AND
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TABLE OF CONTENTS
ARTICLE I.................................................................... 1
Definitions.......................................................... 1
Section 1.1 Definitions..................................... 1
ARTICLE II................................................................... 6
Relationship of the Parties.......................................... 6
ARTICLE III.................................................................. 6
Services to be Provided by Apple..................................... 6
Section 3.1 Overall Function................................ 6
Section 3.2 General Administrative Services. ............... 7
Section 3.3 Facilities...................................... 9
Section 3.4 Acquisition and Assistance...................... 10
Section 3.5 Inventory and Supplies.......................... 10
Section 3.6 Advertising and Public Relations................ 10
Section 3.7 Personnel....................................... 10
Section 3.8 Quality Assurance............................... 11
Section 3.9 Other Consulting and Advisory Services.......... 11
ARTICLE IV................................................................... 11
Obligations of the Orthodontic Entity and Orthodontist............... 11
Section 4.1 Employment of Orthodontist Employees............ 11
Section 4.2 Professional Services........................... 12
Section 4.3 Orthodontic Practice............................ 12
Section 4.4 Orthodontic Entity's and Orthodontist's
Internal Matters....................................... 13
Section 4.5 Compliance with Laws............................ 13
Section 4.6 Ancillary Services.............................. 14
Section 4.7 Premises and Personal Property.................. 14
Section 4.8 Orthodontic Entity Employee Benefit Plans....... 14
Section 4.9 Peer Review..................................... 15
Section 4.10 Additional Orthodontists........................ 15
Section 4.11 Current Orthodontic Practice.................... 15
ARTICLE V.................................................................... 16
Restrictive Covenants and Liquidated Damages......................... 16
Section 5.1 Restrictive Covenants by the Orthodontic Entity. 16
Section 5.2 Restrictive Covenants of Orthodontist........... 16
Section 5.3 Acknowledgement of Proprietary Interest......... 17
Section 5.4 Covenant Not-to-Divulge Confidential and
Proprietary Information................................ 18
Section 5.5 Return of Materials to Apple.................... 18
Section 5.6 [INTENTIONALLY DELETED]......................... 18
Section 5.7 Restrictive Covenants of Orthodontic
Entity Professional Employees.......................... 18
Section 5.8 Restrictive Covenants of Apple.................. 19
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Section 5.9 Remedies........................................ 19
ARTICLE VI................................................................... 19
Financial and Security Arrangements.................................. 19
Section 6.1 Service Fees.................................... 19
Section 6.2 Adjustments to Service Fees..................... 20
Section 6.3 Working Capital Loans........................... 20
Section 6.4 Security Agreement.............................. 21
ARTICLE VII.................................................................. 21
Records.............................................................. 21
Section 7.1 Records Owned by Apple.......................... 21
Section 7.2 Access to Records............................... 21
ARTICLE VIII................................................................. 22
Insurance and Indemnity.............................................. 22
Section 8.1 Insurance to be Maintained by the Orthodontic
Entity and Orthodontist................................ 22
Section 8.2 Insurance to be Maintained by Apple............. 22
Section 8.3 Continuing Liability Insurance Coverage......... 22
Section 8.4 Additional Insureds............................. 22
Section 8.5 Indemnification................................. 23
ARTICLE IX................................................................... 23
Term and Termination................................................. 23
Section 9.1 Term of Agreement............................... 23
Section 9.2 Extended Term................................... 23
Section 9.3 Termination by the Orthodontic Entity and
Orthodontist........................................... 23
Section 9.4 Termination by Apple............................ 24
Section 9.5 Termination by Orthodontist..................... 25
Section 9.6 Effective Date of Termination................... 25
Section 9.7 Purchase of Assets.............................. 25
Section 9.8 Terms of Purchase............................... 26
Section 9.9 Exception to Purchase........................... 26
Section 9.10 Effect Upon Termination......................... 26
ARTICLE X.................................................................... 27
General Provisions................................................... 27
Section 10.1 Assignment...................................... 27
Section 10.2 Amendments...................................... 27
Section 10.3 Waiver of Provisions............................ 27
Section 10.4 Additional Documents............................ 28
Section 10.5 Attorneys' Fees................................. 28
Section 10.6 Contract Modifications for Prospective
Legal Events........................................... 28
Section 10.7 Parties In Interest; No Third-Party
Beneficiaries.......................................... 28
Section 10.8 Entire Agreement................................ 28
Section 10.9 Severability.................................... 28
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Section 10.10 Governing Law................................... 29
Section 10.11 No Waiver; Remedies Cumulative.................. 29
Section 10.12 Language Construction........................... 29
Section 10.13 Communications.................................. 29
Section 10.14 Captions........................................ 29
Section 10.15 Gender and Number............................... 29
Section 10.16 Reference to Agreement.......................... 29
Section 10.17 Notice.......................................... 30
Section 10.18 Choice of Forum................................. 30
Section 10.19 Service of Process.............................. 31
Section 10.20 Counterparts.................................... 31
Section 10.21 Defined Terms................................... 31
EXHIBITS
Exhibit 1.1(u) Orthodontic Entity Professional Employment Agreements
Exhibit 7.3. Form of Security Agreement
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SERVICE AGREEMENT
This Service Agreement (this "Agreement"), dated as of
__________________, 1997, is by and between Apple Orthodontix Inc., a Delaware
corporation ("AOI" or "Apple"), ____________, D.D.S. ("Orthodontist") and
_________________________________, a ____________ professional corporation (the
"Orthodontic Entity").
W I T N E S S E T H:
WHEREAS, Orthodontic Entity and Orthodontist provide comprehensive
professional orthodontic care to the general public in the ____________ area;
and
WHEREAS, Apple is in the business of owning certain assets of
orthodontic clinics and providing consulting, administrative, and other support
services to and furnishing orthodontic practices with the necessary facilities,
equipment, non-orthodontist personnel, supplies and support staff services; and
WHEREAS, the Orthodontic Entity and Orthodontist desire to obtain the
services of Apple in performing such functions so as to permit the Orthodontic
Entity to devote its efforts on a concentrated and continuous basis to the
rendering of orthodontic services to its patients; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and on the terms and subject to the
conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the
following definitions shall apply:
(a) "Acquisition" shall mean the acquisition described in the
Acquisition Agreement.
(b) "Acquisition Agreement" shall mean the Contribution Agreement
dated February 11, 1997, among AOI, _____________________, a
_____________ professional corporation, and Orthodontist.
(c) "Acquisition Closing Date" shall mean the date the
Acquisition is effective pursuant to the terms of the Acquisition
Agreement.
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(d) "Affiliate" with respect to any person shall mean a person
that directly or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, such
person.
(e) "AOI Group" shall mean Apple, Affiliates of Apple and all
professional associations or corporations or other entities for which
Apple or its Affiliates provides management services.
(f) "AOI Plans" shall have the meaning set forth in SECTION
4.8(b).
(g) "Apple Expenses" shall mean, pursuant to GAAP applied on a
consistent basis:
(i) Any corporate overhead charges of Apple and other
items incurred by Apple that are not incurred specifically for
the purpose of providing services to the Orthodontic Entity or
Orthodontist or are not directly attributable to the Orthodontic
Entity or Orthodontist as reasonably determined by Apple,
including without limitation, salaries and benefits of executive
officers of Apple, except as otherwise provided for in the
definition of Orthodontic Entity and Orthodontist Expenses;
(ii) Any legal and accounting expenses incurred by Apple
in connection with the Acquisition;
(iii) All taxes of Apple, including but not limited to
state and federal income taxes and franchise taxes, but excluding
state and federal employee taxes related to Orthodontist or
employees who provide services for the Orthodontic Entity or
Orthodontist, property taxes on assets used by the Orthodontic
Entity or Orthodontist and other taxes specifically included in
Excluded Orthodontic Entity and Orthodontist Expenses; and
(iv) Any other expenses specifically included in "Apple
Expenses" in this Agreement.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Confidential and Proprietary Information" shall have the
meaning set forth in SECTION 5.3.
(j) "Disabled" or "Disability" shall mean, with respect to
Orthodontist, (a) having a mental or physical incapacity sufficiently
serious that Apple may reasonably anticipate that Orthodontist will be
unable to resume the normal performance of Orthodontist's duties within
the two years succeeding the commencement of Orthodontist's incapacity,
or (b) Orthodontist's receipt of benefits for a period of six
consecutive months by reason of disability under a salary continuation,
or other disability plan, maintained for Orthodontist's benefit. In the
event of such mental or physical incapacity, each Orthodontist agrees
upon Apple's request to submit Orthodontist's
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medical and other related records to be examined by an independent
third-party doctor selected by Apple whose decision shall govern for
purposes of determining the existence of a disability.
(k) "ERISA" shall have the meaning set forth in SECTION 4.8(a).
(l) "Excluded Orthodontic Entity and Orthodontist Expenses" shall
mean, (i) any salaries or other distributions made to Orthodontist or
any shareholder of the Orthodontic Entity, whether for professional fee
income or otherwise, and any expenses related thereto, including payroll
and other taxes associated therewith, and any expenses or costs
associated with benefits provided to Orthodontist or any shareholder of
the Orthodontic Entity, including pension benefits and life and health
insurance, (ii) any federal, state or other income taxes applicable to
the Orthodontic Entity or Orthodontist, (iii) legal, accounting and
other costs incurred by the Orthodontic Entity or Orthodontist in
connection with the negotiation, preparation of or closing of the
transactions contemplated by the Acquisition Agreement, this Agreement
or any other document executed in connection herewith or therewith and
(vi) any other expenses specifically included in "Excluded Orthodontic
Entity and Orthodontist Expenses" in this Agreement.
(m) "Fair Market Value" shall mean as to any assets, the fair
market value of such assets as determined by Apple and the Orthodontic
Entity. In the event the parties are unable to agree upon the fair
market value, then Apple and the Orthodontic Entity shall each select an
independent appraiser who will then select a third independent appraiser
who will determine the fair market value of the asset in question.
(n) "GAAP" shall mean generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity or other practices and procedures as may be approved by a
significant segment of the accounting profession, which are applicable
to the circumstances as of the date of determination.
(o) "Initial Working Capital Line" shall have the meaning set
forth in SECTION 6.3.
(p) "Loan Termination Date" shall have the meaning set forth in
SECTION 6.3.
(q) "Orthodontic Entity" shall include the Orthodontic Entity as
defined in the first paragraph of this Agreement and all satellite
locations and related businesses of such Orthodontic Entity.
(r) "Orthodontic Entity and Orthodontist Expenses" shall mean all
operating and non-operating expenses of Apple with respect to the
Orthodontic Entity for services requested by the Orthodontic Entity or
Orthodontist and all operating and non-operating expenses of the
Orthodontic Entity and Orthodontist incurred by the Orthodontic Entity
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or Orthodontist in the operation of the Orthodontic Entity or the
practice of orthodontics by Orthodontist, including, without limitation:
(i) Salaries, benefits and other direct costs of all
employees of Apple who perform services for the benefit of the
Orthodontic Entity or Orthodontist and all salaries and benefits
of Orthodontic Entity Professional Employees and Orthodontic
Entity Employees, including, without limitation, federal and
state employee taxes and costs related to workers' compensation;
provided, however, only the portion of salaries, benefits and
other direct costs related to such employee, without ▇▇▇▇-up,
that is allocable to work performed at or for the benefit of the
Orthodontic Entity or Orthodontist and approved by the
Orthodontic Entity or Orthodontist will be included in
Orthodontic Entity and Orthodontist Expenses;
(ii) Direct costs of all employees or consultants of Apple
and its Affiliates to provide services at or in connection with
the Orthodontic Entity or for the Orthodontist at or in
connection with the Orthodontic Entity for improved performance;
provided, however, (x) only the portion of salaries, benefits and
other direct costs related to such employee or consultant,
without ▇▇▇▇-up, that is allocable to work performed at or for
the benefit of the Orthodontic Entity or Orthodontist and
approved by the Orthodontic Entity or Orthodontist will be
included in Orthodontic Entity and Orthodontist Expenses, and (y)
the salaries, other employee benefits or consulting fees paid by
Apple and its Affiliates to the consultants who will provide
three days per annum of marketing consulting services and one day
per annum of health and safety consulting services shall not be
included in Orthodontic Entity and Orthodontist Expenses but
shall be Apple Expenses;
(iii) Personal property and intangible taxes assessed
against assets of Apple or any of its Affiliates which are leased
or utilized for the benefit of the Orthodontic Entity or
Orthodontist under this Agreement, commencing on the date of this
Agreement; provided, however, only the portion of the taxes
related to such assets, without ▇▇▇▇-up, that is allocable to the
use of such assets at or for the benefit of the Orthodontic
Entity or Orthodontist and approved by the Orthodontic Entity or
Orthodontist will be included in Orthodontic Entity and
Orthodontist Expenses;
(iv) All costs, fees, expenses and other disbursements
incurred in connection with the Premises (as defined in SECTION
3.3) and the Personal Property (as defined in SECTION 3.3),
including, without limitation, all costs of repairs, maintenance
and improvements, utility expenses (i.e., telephone, electric,
gas and water), janitorial services, refuse disposal, real or
personal property lease cost payments and expenses, taxes and
casualty, liability and other insurance,
(v) Any provider tax or license fee assessed against the
Orthodontic Entity or Orthodontist by the State of ____________
and any sales and use taxes assessed against Apple and its
Affiliates, the Orthodontic Entity or Orthodontist
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related to Orthodontic Entity operations, the practice of
orthodontics by Orthodontist or assessed against Apple related to
services provided hereunder;
(vi) Expenses related to professional meetings, seminars
and dues and professional licensing fees of Orthodontist or any
Orthodontic Entity Professional Employee or related to the
business of the Orthodontic Entity;
(vii) All expenses specifically included in "Orthodontic
Entity and Orthodontist Expenses" in this Agreement; and
(viii) Depreciation and amortization of all assets
purchased subsequent to the Acquisition for use by the
Orthodontic Entity and Orthodontist.
Provided, however, that, notwithstanding anything contained herein,
Apple Expenses and Excluded Orthodontic Entity and Orthodontist Expenses
shall not be included in Orthodontic Entity and Orthodontist Expenses.
(s) "Orthodontic Entity Employees" shall mean (i) those
individuals who are employed by or otherwise under contract or
associated with the Orthodontic Entity or Orthodontist that generate a
professional charge, and (ii) those individuals required by law to be
employed by the Orthodontic Entity or Orthodontist.
(t) "Orthodontic Entity Professional Employees" shall mean those
individuals who are orthodontists, dental hygienist or licensed
professionals employed by the Orthodontic Entity or Orthodontist or
otherwise under contract or associated with the Orthodontic Entity or
Orthodontist to provide professional orthodontic services to patients of
the Orthodontic Entity or Orthodontist, provided, however, that
Orthodontist shall be excluded from the definition of Orthodontic Entity
Professional Employees.
(u) "Orthodontic Entity Professional Employment Agreements" shall
mean the employment agreements entered into of even date herewith
between the Orthodontic Entity or Orthodontist and each Orthodontic
Entity Professional Employee (not including Orthodontic Entity
Employees) in substantially the form attached to the Acquisition
Agreement as EXHIBIT 1.1(U).
(v) "Orthodontic Entity Related Liabilities" shall have the
meaning set forth in SECTION 9.7(b).
(w) "Personal Property" shall have the meaning set forth in
SECTION 3.3(b).
(x) "Practice Plans" shall have the meaning set forth in SECTION
4.8(a).
(y) "Premises" shall have the meaning set forth in SECTION
3.3(a).
(z) "Purchase Assets" shall have the meaning set forth in SECTION
9.7(a).
(aa) "Purchase Closing" shall have the meaning set forth in
SECTION 9.8.
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(ab) "Security Agreement" shall have the meaning set forth in
SECTION 6.4.
(ac) "Tax Returns" shall include all federal, state, local,
franchise, property and other tax returns.
(ad) "Termination Date" shall have the meaning set forth in
SECTION 9.6.
ARTICLE II
RELATIONSHIP OF THE PARTIES
The Orthodontic Entity, Orthodontist and Apple intend to act and perform
as independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, agency or employment relationship between the
parties. Apple, the Orthodontic Entity and Orthodontist agree that the
Orthodontic Entity and Orthodontist shall retain the authority to direct the
orthodontic, professional, and ethical aspects of their orthodontic practice.
Apple shall neither exercise control over nor interfere with the
orthodontist-patient relationships of the Orthodontic Entity and Orthodontist,
which shall be maintained strictly between the orthodontists of the Orthodontic
Entity and their patients. The parties hereby agree that neither the benefits to
the Orthodontic Entity and Orthodontist hereunder, nor the payment of services
fees to Apple, require, are payment for, or are in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by Apple or any of its Affiliates to any of the Orthodontic
Entity's or Orthodontist's patients in any facility or laboratory controlled,
managed or operated by Apple.
ARTICLE III
SERVICES TO BE PROVIDED BY APPLE
SECTION 3.1 OVERALL FUNCTION. In accordance with the terms hereof, Apple
shall provide or arrange for the services set forth in this ARTICLE III, and the
costs, fees, expenses and other disbursements incurred by Apple in connection
therewith shall be included in Orthodontic Entity and Orthodontist Expenses,
except to the extent such costs, fees or expenses are Apple Expenses or Excluded
Orthodontic Entity and Orthodontist Expenses. Apple is authorized to perform its
services hereunder as is necessary or appropriate for the efficient operation of
the Orthodontic Entity. The Orthodontic Entity and Orthodontist will not act in
a manner which would prevent Apple from performing its duties hereunder and will
provide such information and assistance to Apple as is reasonably required by
Apple to perform its services hereunder. Apple shall, and shall use its best
efforts to cause its employees, to comply with all federal, state and local
laws, rules and regulations in its provision of services hereunder.
SECTION 3.2 GENERAL ADMINISTRATIVE SERVICES.
(a) The Orthodontic Entity hereby appoints Apple to serve as its
exclusive manager and administrator of non-orthodontist services
relating to the operation of the
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Orthodontic Entity and the practice of orthodontics by Orthodontist,
subject to matters reserved for the Orthodontic Entity or Orthodontist
as herein provided, and Apple shall have all necessary authority to
perform such services in accordance with the terms of this Agreement.
The Orthodontic Entity agrees that the purpose and intent of this
Agreement is to relieve the Orthodontic Entity and Orthodontist to the
maximum extent possible of the administrative, accounting,
non-orthodontist personnel and business aspects of its practice. Apple
agrees that the Orthodontic Entity, Orthodontist, Orthodontic Entity
Employees and the Orthodontic Entity Professional Employees, and only
the Orthodontic Entity, Orthodontist, Orthodontic Entity Employees and
the Orthodontic Entity Professional Employees, will perform the
orthodontic functions of their respective practices; provided, however,
that to the extent that an Apple employee assists Orthodontist, any
Orthodontic Entity Professional Employee or the Orthodontic Entity in
performing orthodontic functions, such Apple employee shall be subject
to the professional direction and supervision of Orthodontist,
Orthodontic Entity Professional Employee or Orthodontic Entity and in
the performance of such orthodontic functions, shall not be subject to
any direction or control by, or liability to, Apple, except as may be
specifically authorized by Apple. Apple will have no authority, directly
or indirectly, to perform or supervise, and will not perform or
supervise, any orthodontic function. Apple may, however, advise the
Orthodontic Entity and Orthodontist as to the relationship between its
performance of orthodontic functions and the overall administrative and
business functions of the practice to the extent permitted by applicable
law. Apple shall cause to be paid all federal and state employment taxes
and related tax reports for its employees.
(b) Apple shall, on behalf of Orthodontist and the Orthodontic
Entity, provide all services related to the billing of patients,
insurance companies and other third-party payors and collect the
professional fees for orthodontic services rendered by Orthodontist and
the Orthodontic Entity, for services performed outside the Orthodontic
Entity for its patients, and for all other professional and Orthodontic
Entity services and products and for services rendered by Orthodontist
in accordance with all applicable legal requirements and the policies
and procedures of third-party payors. To the extent necessary to comply
with applicable laws or the terms of any third-party payor arrangements,
Apple shall ▇▇▇▇ in the name of and on behalf of the Orthodontic Entity
and Orthodontist. The Orthodontic Entity hereby appoints Apple for the
term of this Agreement to be its true and lawful attorney-in-fact, for
the following purposes: (i) to ▇▇▇▇ patients, insurance companies and
other third-party payors in the Orthodontic Entity's and Orthodontist's
name and on their behalf pursuant to the fee schedule prepared by the
Orthodontic Entity and Orthodontist; (ii) to collect accounts receivable
resulting from such billing in the Orthodontic Entity's and
Orthodontist's name and on their behalf; (iii) to receive payments from
insurance companies, prepayments received from health care plans and all
other third party payors; (iv) to take possession of and endorse in the
name of the Orthodontic Entity (and/or in the name of an individual
orthodontist, such payment intended for purpose of payment of a
orthodontist's ▇▇▇▇ related to the Orthodontic Entity or Orthodontist)
any notes, checks, money orders, insurance payments and other
instruments received in payment of accounts receivable; and (v) in each
case, after approval by the Orthodontist, to initiate the institution of
legal proceedings in the name of the Orthodontic Entity or Orthodontist
or Orthodontic Entity Professional Employee
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to collect any accounts and monies owed to the Orthodontic Entity or
Orthodontist or Orthodontic Entity Professional Employee, to enforce the
rights of the Orthodontic Entity or Orthodontist or Orthodontic Entity
Professional Employee as creditors under any contract or in connection
with the rendering of any service, and to contest adjustments and
denials by third-party payors. The Orthodontic Entity and Orthodontist
shall, and shall cause each Orthodontic Entity Professional Employee to,
execute a Power of Attorney in form and substance acceptable to the
parties hereto in connection with the rights and powers granted to Apple
pursuant to this SECTION 3.2(b). All monies shall be accounted for by
Apple as being distinctly attributable to the Orthodontic Entity. The
Orthodontic Entity may perform the functions or exercise the rights set
forth in this SECTION 3.2(b) only with the consent of Apple. The
Orthodontic Entity and Orthodontist will assist Apple with the functions
set forth herein at the request of Apple.
(c) Apple shall supply to the Orthodontic Entity the ordinary,
necessary or appropriate services for the efficient operation of the
Orthodontic Entity, including without limitation, necessary clerical,
accounting, payroll, legal, bookkeeping and computer services,
information management, information for the preparation of Tax Returns,
printing, postage and duplication services and orthodontic transcribing
services. Apple shall prepare monthly and annual unaudited financial
statements for the Orthodontic Entity containing a balance sheet and
income statement, which shall be delivered to the Orthodontic Entity
within 45 days after the end of each calendar month and 120 days after
the end of each calendar year. Any audits to be conducted with respect
to such financial statements shall be an Excluded Orthodontic Entity and
Orthodontist Expense.
(d) Apple shall maintain all files and records of the Orthodontic
Entity and Orthodontist relating to the operation of the Orthodontic
Entity or the practice of orthodontics by Orthodontist, including, but
not limited to, accounting, billing, collection and customary financial
records and patient files. The management of all files and records shall
comply with all applicable federal, state and local statutes and
regulations, and all files and records shall be located so that they are
readily accessible for patient care, consistent with ordinary records
management practices. The Orthodontic Entity and Orthodontist shall
supervise the preparation of, and direct the contents of, patient
orthodontic records, all of which shall remain confidential. All
original patient records shall be and remain the property of the
Orthodontic Entity or Orthodontist, as applicable; provided that, to the
extent permitted by applicable law, Apple shall have the right to copy
such patient records and to retain and use such copies.
SECTION 3.3 FACILITIES.
(a) Apple shall make available to the Orthodontic Entity and
Orthodontist the premises that are described in SCHEDULE 3.3 attached
hereto (which describes each location where the Orthodontist provided
orthodontic services to patients on January 31, 1997 and each location
proposed to be opened to provide such services on such date) and such
other real property acquired (with the consent of the Orthodontic Entity
and Orthodontist) and improvements made by Apple for the use of the
Orthodontic Entity and Orthodontist hereunder (collectively, the
"Premises"); provided, that in the event that
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Apple's rights to use any such premises shall terminate, Apple shall use
reasonably commercial efforts to provide other suitable premises to be
used by the Orthodontic Entity and Orthodontist, which premises shall be
approved by the Orthodontic Entity and Orthodontist, such approval not
to be unreasonably withheld. Apple shall obtain for the Orthodontic
Entity and Orthodontist all utilities reasonably required in connection
with the use of the Premises and shall provide for the proper
cleanliness of the Premises, including normal janitorial services and
refuse disposal.
(b) Apple shall provide the Orthodontic Entity and Orthodontist
with the use of the equipment, furniture, fixtures, furnishings and
other tangible personal property acquired by Apple in the Acquisition,
together with replacements thereof and such other equipment, furniture,
fixtures, furnishings and tangible personal property acquired (with the
consent of the Orthodontic Entity or Orthodontist) by Apple for the use
of Orthodontic Entity and Orthodontist pursuant to the terms hereof
(collectively, the "Personal Property").
(c) Apple shall provide, finance, or cause to be provided or
financed, orthodontic related equipment as required by the Orthodontic
Entity. Apple may consult the Orthodontic Entity on the relationship
between its orthodontic equipment decisions and the overall
administrative and financial operations of the practice. All orthodontic
and non-orthodontic equipment acquired for the use of the Orthodontic
Entity shall be owned by Apple but shall be utilized solely by the
Orthodontic Entity so long as the Orthodontic Entity is repaying its
portion of the cost thereof. Apple and Orthodontic Entity will share
equally in the cost to purchase any new or replacement orthodontic or
non-orthodontic equipment to be acquired after consummation of the
Acquisition (except with respect to the first $100,000 worth of such
equipment, which shall be purchased by Apple), provided that the
Orthodontic Entity and Apple mutually agree to acquire such equipment.
Apple may advance or cause to be financed the total purchase value of
any equipment acquired. The Orthodontic Entity may repay in full its
share of the cost or finance such amount due to Apple in equal payments
over a term of up to 60 months at a rate of prime plus 1%. The amount,
if any, due to Apple will be paid monthly by the Orthodontic Entity. Any
amounts paid to Apple by the Orthodontic Entity pursuant to this Section
3.3(c) are Excluded Orthodontic Entity and Orthodontist Expenses.
(d) In the event Apple and the Orthodontic Entity jointly
determine to open a satellite orthodontic office, (i) Apple will bear
60% of the capital costs, and the Orthodontic Entity will bear 40% of
the capital costs, of opening such satellite office, and (ii) Apple
shall make available loans accruing annual interest at the prime rate of
NationsBank of Texas, N.A. plus 1% to finance the Orthodontic Entity's
and Orthodontist's portion of such costs. No principal or interest
payments for any such loan shall be due until the first day of the
sixteenth month following the date of the loan (the "First Payment
Date"). The amount of interest that accrues until the date fifteen
months after the origination date of the loan shall be added to the
original principal amount of the loan to determine the principal amount
payable by the Orthodontic Entity. Sixty equal principal payments plus
accrued interest shall be payable beginning on the First Payment Date
and ending on the first day of the fifty-ninth month thereafter.
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SECTION 3.4 ACQUISITION AND ASSISTANCE. In the event a decision is made
by the Orthodontic Entity or Orthodontist to employ additional orthodontists or
acquire orthodontist groups or practices, Apple may assist the Orthodontic
Entity in the identification and selection of orthodontists or orthodontist
groups or practices that may be beneficial in the operation of the Orthodontic
Entity. In the event that a decision is made by the Orthodontic Entity or
Orthodontist to pursue the employment of selected orthodontists or the
acquisition of a particular orthodontist group or practice, Apple may provide
recruiting, consulting, negotiating and other services and may provide for
legal, accounting and other professional advisor services in connection with
such transaction.
SECTION 3.5 INVENTORY AND SUPPLIES. Apple shall order and purchase
inventory and supplies, and such other ordinary, necessary or appropriate
materials which are reasonably necessary in the operation of the Orthodontic
Entity and which are requested by Orthodontist to deliver quality orthodontic
services in a cost-effective manner. Such inventory, supplies and other
materials shall be included in Orthodontic Entity and Orthodontist Expense at
their purchase price less discounts or rebates, if any.
SECTION 3.6 ADVERTISING AND PUBLIC RELATIONS. In consultation with the
Orthodontic Entity and Orthodontist, Apple shall design and produce (where
requested) any appropriate local public relations or advertising program on
behalf of the Orthodontic Entity, with appropriate emphasis on public awareness
of the availability of services at the Orthodontic Entity. Any design and
production costs incurred by Apple related to local public relations or
advertising programs requested by the Orthodontic Entity or Orthodontist shall
be Apple Expenses. All other costs of local advertising programs on behalf of
the Orthodontic Entity will be included in Orthodontic Entity and Orthodontist
Expenses, including, but not limited to, out-of-pocket costs incurred by Apple.
All public relations and advertising programs shall be conducted in compliance
with applicable standards of orthodontic ethics, laws and regulations. Apple
shall make available interest-free loans (up to an amount equal to the lesser of
the Orthodontic Entity's costs of local advertising and 6% of the Transaction
Value (as defined in the Acquisition Agreement)) to finance the Orthodontic
Entity's costs of local advertising until the first anniversary of the date of
this Agreement. The principal amount of any such loans shall be repaid by the
Orthodontic Entity in twelve equal monthly installments beginning on the first
anniversary of the date of this Agreement.
SECTION 3.7 PERSONNEL. Apple shall provide non-orthodontist professional
support and administrative personnel, clerical, secretarial, bookkeeping and
collection personnel reasonably necessary for the conduct of the Orthodontic
Entity's operations. Apple will consult with the orthodontist to determine the
salaries and fringe benefits to be paid to all such personnel. Such personnel
shall be under the direction, supervision and control of Apple, with those
personnel performing patient care services subject to the professional
supervision of Orthodontist while such personnel are performing such patient
care services. If Orthodontist is dissatisfied with the services of any person,
Orthodontist shall consult with Apple. Apple shall in good faith determine
whether the performance of that employee could be brought to acceptable levels
through counsel and assistance, or whether such employee should be reassigned or
terminated. All of Apple's obligations regarding staff shall be governed by the
overriding principle and goal of providing high quality orthodontic care.
Employee assignments shall be made to assure consistent and continued rendering
of high quality orthodontic support services and to ensure
10
prompt availability and accessibility of individual orthodontic support
personnel to orthodontists in order to develop constant, familiar and routine
working relationships between individual orthodontists and individual members of
the orthodontic support personnel. Apple shall maintain established working
relationships wherever possible and Apple shall make every effort consistent
with sound business practices to honor the specific requests of Orthodontist
with regard to the assignment of its employees. Apple shall provide
administrative services such as scheduling, personnel policies and payroll
administration for Orthodontic Entity Employees. Apple and the Orthodontic
Entity shall use their best efforts to define who are their respective employees
for all administrative purposes.
SECTION 3.8 QUALITY ASSURANCE. Apple shall assist the Orthodontic Entity
in fulfilling its obligations to its patients to maintain a high quality of
orthodontic and professional services and any expenses incurred by Apple related
to such in connection therewith shall be included in Orthodontic Entity and
Orthodontist Expenses.
SECTION 3.9 OTHER CONSULTING AND ADVISORY SERVICES. Apple will provide
such consulting and other advisory services as requested by the Orthodontic
Entity or Orthodontist in all areas of the Orthodontic Entity's or
Orthodontist's business functions, including, without limitation, financial
planning, acquisition and expansion strategies, development of long-term
business objectives and other related matters. Subject to the provisions of
SECTION 1.1(r)(ii) hereof, the costs and expenses of third-party consultants
engaged by Apple to provide such services shall be Orthodontic Entity and
Orthodontist Expenses.
ARTICLE IV
OBLIGATIONS OF THE ORTHODONTIC ENTITY AND ORTHODONTIST
SECTION 4.1 EMPLOYMENT OF ORTHODONTIST EMPLOYEES. The Orthodontist shall
have complete control of and responsibility for the hiring, compensation,
supervision, evaluation and termination of any orthodontist employed by the
Orthodontic Entity, although at the request of the Orthodontic Entity or
Orthodontist, Apple shall consult with the Orthodontic Entity and Orthodontist
with respect to such matters. Although Apple may provide payroll and other
related services to the Orthodontic Entity and Orthodontist, the Orthodontic
Entity and Orthodontist shall be solely responsible for the payment of their
respective Orthodontic Entity Professional Employees' and Orthodontic Entity
Employees' salaries and wages, payroll taxes and all other taxes and charges now
or hereafter applicable to them. Neither the Orthodontic Entity, Orthodontist,
their respective Orthodontic Entity Professional Employees nor their respective
Orthodontic Entity Employees shall have any claim under this Agreement or
otherwise against Apple for workers' compensation, unemployment compensation,
Social Security benefits or any other employee benefits, all of which shall be
the sole responsibility of the Orthodontic Entity and Orthodontist. The
Orthodontic Entity and Orthodontist shall only employ and contract with licensed
orthodontists and other persons meeting applicable credentialling guidelines
established by the Orthodontic Entity and Orthodontist and approved by Apple,
which approval will not be unreasonably withheld. The Orthodontic Entity and
Orthodontist shall cooperate in the obtaining and retaining of professional
liability insurance by ensuring that their respective Orthodontic Entity
Professional Employees and Orthodontic Entity Employees and
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other employees who have malpractice exposure or liability are insurable, and
participating in an on-going risk management program.
SECTION 4.2 PROFESSIONAL SERVICES. The Orthodontic Entity and
Orthodontist shall provide professional services to patients in compliance at
all times with ethical standards, laws, rules and regulations applying to the
Orthodontic Entity, Orthodontist, the Orthodontic Entity Professional Employees
and the Orthodontic Entity Employees. The Orthodontic Entity and Orthodontist
shall ensure that Orthodontist, Orthodontic Entity Professional Employees and
Orthodontic Entity Employees have all required licenses, credentials, approvals
or other certifications to perform his or her duties and services. In the event
that any disciplinary actions or orthodontic malpractice actions are initiated
against Orthodontist, an Orthodontic Entity Professional Employee or an
Orthodontic Entity Employee, the Orthodontic Entity shall immediately inform
Apple of such action and the underlying facts and circumstances. The Orthodontic
Entity and Orthodontist shall carry out a program to monitor the quality of
orthodontic care practiced at the Orthodontic Entity. The Orthodontic Entity
shall employ such Orthodontic Entity Professional Employees as is necessary to
provide efficient orthodontic care to patients of the Orthodontic Entity.
Orthodontist and the Orthodontic Entity shall make all reports and inquiries to
any state data bank required by applicable law.
SECTION 4.3 ORTHODONTIC PRACTICE. The Orthodontic Entity and
Orthodontist shall use and occupy the Premises exclusively for the practice of
orthodontics and for providing other related services and products. Unless
otherwise approved in writing by the Orthodontic Entity and Apple, it is
expressly acknowledged by the Orthodontic Entity and Orthodontist that the
orthodontic practice or practices conducted at the Orthodontic Entity shall be
conducted solely by orthodontists associated with the Orthodontic Entity, and
that the Orthodontic Entity and Orthodontist shall not permit any other
orthodontist or dental practitioner to use or occupy the Orthodontic Entity. The
Orthodontic Entity and Orthodontist shall be solely and exclusively in control
of all aspects of the practice of orthodontics and the delivery of orthodontic
services by Orthodontist or at the Orthodontic Entity's facilities. The
rendition of all orthodontic professional services, including, but not limited
to, diagnosis, treatment, therapy, the prescription of medicine and drugs, and
the supervision and preparation of orthodontic reports shall be the sole
responsibility of the Orthodontic Entity and Orthodontist. Apple shall have no
authority whatsoever with respect to the establishment of fees or charges for
the rendition of such services; provided, however, that in the event the
Orthodontic Entity or the Orthodontist renders orthodontic services to a patient
in consideration for anything other than cash, Apple will determine the value of
such consideration for purposes of determining the amount of revenues received
by the Orthodontic Entity or Orthodontist. From time to time, the Orthodontic
Entity and Orthodontist in their discretion will adopt and implement fee
schedules for non-prepaid patients which shall be reasonable in relation to fees
generally being obtained in the same or similar market areas. Notwithstanding
any provision of this Agreement to the contrary, nothing herein shall be
construed as precluding Apple from permitting the use of or from entering into
agreements with other orthodontists or entities owned by other orthodontists
similar to this Agreement, with respect to the Premises, Personal Property and
tradenames, trademarks and other intangible assets of Apple utilized by the
Orthodontic Entity or Orthodontist pursuant to this Agreement; provided any such
other agreement shall not eliminate or diminish Apple's obligations hereunder or
interfere with the Orthodontic Entity's or Orthodontist's business.
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SECTION 4.4 ORTHODONTIC ENTITY'S AND ORTHODONTIST'S INTERNAL MATTERS.
The Orthodontic Entity and Orthodontist shall be responsible for matters
involving their respective corporate governance, employees and similar internal
matters, including, but not limited to, preparation and contents of such reports
to regulatory authorities governing the Orthodontic Entity and Orthodontist that
the Orthodontic Entity or Orthodontist are required by law to provide,
distribution of professional fee income among Orthodontist or the shareholders
of the Orthodontic Entity, disposition of the Orthodontic Entity's and
Orthodontist's property and stock and hiring and firing of their employees and
licensing. Except for the expenses attributable to the distribution of
professional fee income among Orthodontist or the shareholders of the
Orthodontic Entity which will be included in Excluded Orthodontic Entity and
Orthodontist Expenses, the costs incurred in connection with the foregoing
matters shall be Orthodontic Entity and Orthodontist Expenses. The legal,
accounting and other professional services fees incurred by Orthodontist or the
Orthodontic Entity in connection with the internal matters of the Orthodontic
Entity, the personal accounting of the Orthodontic Entity and Orthodontist and
similar internal and personal matters, including without limitation, the costs
associated with enforcing any contract with a Orthodontic Entity Professional
Employee (other than as set forth in SECTION 5.8), shall be Excluded Orthodontic
Entity and Orthodontist Expenses.
SECTION 4.5 COMPLIANCE WITH LAWS. The Orthodontic Entity and
Orthodontist shall, and shall use their best efforts to cause Orthodontist and
Orthodontic Entity Professional Employees to, comply with all applicable
federal, state and local laws, rules, regulations and restrictions in the
conduct of the Orthodontic Entity's and Orthodontist's business. Without
limiting the generality of the foregoing, the Orthodontic Entity and
Orthodontist shall use their best efforts to forbid Orthodontist and each
Orthodontic Entity Professional Employee to:
(a) enter into any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting
agreement, to provide services, lease space, lease equipment or engage
in any other venture or activity with any orthodontist, hospital,
pharmacy, home health agency or other person or entity which is in a
position to make or influence referrals to, or otherwise generate
business for, the Orthodontic Entity or Orthodontist, if such
transaction is in violation of any applicable law, rule or regulation;
(b) knowingly and willfully make or cause to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
(c) knowingly and willfully make or cause to be made a false
statement or representation of a material fact for use in determining
rights to any benefit or payment; and
(d) fail to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment.
SECTION 4.6 ANCILLARY SERVICES. The Orthodontic Entity and Orthodontist
agree not to acquire, establish or operate any satellite location, orthodontic
office, health maintenance organization, preferred provider organization,
exclusive provider organization or similar entity
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or organization established or operated by the Orthodontic Entity or
Orthodontist after the date hereof without the prior written consent of Apple.
Orthodontist and the Orthodontic Entity shall not merge or consolidate with any
other entity or individual or liquidate or dissolve or wind-up Orthodontist's or
the Orthodontic Entity's affairs or enter into any partnerships, joint ventures
or sale-leaseback transactions or purchase or otherwise acquire (in one or a
series of transactions) any part of the property or assets of any other person
or entity without the prior written consent of Apple. Apple's consent shall be
required for the Orthodontist to provide orthodontic services at a location
other than the Orthodontic Entity or on behalf of an entity or person other than
the Orthodontic Entity.
SECTION 4.7 PREMISES AND PERSONAL PROPERTY. The Orthodontic Entity and
Orthodontist shall use the Premises and Personal Property for their intended use
to minimize the risk of damage, excessive wear and tear, and malfunction or
other breakdown of the Premises and Personal Property or any part thereof. The
Orthodontic Entity and Orthodontist shall promptly inform Apple in writing of
any and all material replacements, repairs or maintenance to any of the Premises
or Personal Property and any failures of equipment that they become aware of.
The Orthodontic Entity and the Orthodontist shall comply with all covenants and
provisions set forth in any leases for the Premises entered into or assumed by
Apple and Apple agrees to provide copies of all such leases to the Orthodontic
Entity and Orthodontist.
SECTION 4.8 ORTHODONTIC ENTITY EMPLOYEE BENEFIT PLANS.
(a) Effective immediately before the Acquisition Closing Date,
the Orthodontic Entity and Orthodontist shall freeze or terminate all
"employee benefit plans" (as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
that are (i) sponsored or maintained by the Orthodontic Entity or
Orthodontist and (ii) are set forth on SCHEDULE 4.8(A) (the "Practice
Plans"). In connection with such actions, all account balances and
accrued benefits under all tax-qualified Practice Plans (within the
meaning of Section 401(a) of the Code) shall be made fully vested and
nonforfeitable.
(b) Effective on the Acquisition Closing Date, Orthodontist shall
become a participating employer in AOI's employee benefit plans set
forth on SCHEDULE 4.8(B) (the "AOI Plans") with respect to
Orthodontist's employees. Orthodontist acknowledges that AOI will
sponsor a defined contribution plan and that Orthodontist may be
precluded by Section 401(k)(2)(B)(i) from paying distributions in
connection with the termination of any Practice Plan that contains a
"cash or deferred arrangement" within the meaning of Section 401(k) of
the Code. Accordingly, AOI shall take all actions as it may determine to
be reasonable to facilitate the merger of the assets and liabilities of
any tax-qualified Practice Plan into a tax-qualified AOI Plan if such
merger of tax-qualified plans is requested by Orthodontist.
(c) With respect to any Practice Plan or AOI Plan, neither
Orthodontist nor AOI shall take any action or make any contribution to
such plan that would cause such plan to become disqualified for federal
tax purposes. Orthodontist shall not adopt, maintain, or continue any
employee benefit plan after the Acquisition Closing Date without the
prior written approval of AOI.
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(d) Expenses incurred in connection with Practice Plans,
including without limitation the compensation of counsel, accountants,
corporate trustees, and other agents shall be Excluded Orthodontic
Entity and Orthodontist Expenses.
(e) The contribution and administration expenses for the
Orthodontist, Orthodontic Entity Professional Employees (which are not
expenses payable by the AOI Plans or by the participants in the AOI
Plans) shall be included in Orthodontist's operating budget.
Orthodontist and AOI shall not make employee benefit plan contributions
or payments for their respective employees in excess of such budgeted
amounts unless required by law or the terms of the AOI Plans. AOI shall
make contributions or payments with respect to the AOI Plans on behalf
of eligible Orthodontic Entity Professional Employees and Orthodontic
Entity Employees and those contributions or payments shall be treated as
Orthodontic Entity and Orthodontist Expenses, Apple Expenses or Excluded
Orthodontic Entity and Orthodontist Expenses as elsewhere provided in
this Agreement.
(f) AOI shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its
employees and employees of other entities aggregated with AOI pursuant
to Section 414(b), (c), (m) (o) of the Code.
SECTION 4.9 PEER REVIEW. Orthodontist and the Orthodontic Entity agree
to cooperate with Apple in establishing a system of peer review within and among
the orthodontic practices associated with Apple or its Affiliates. In connection
therewith, Orthodontist and the Orthodontic Entity agree to assist in the
formulation of orthodontic provider guidelines for each treatment or modality.
SECTION 4.10 ADDITIONAL ORTHODONTISTS. The Orthodontic Entity and
Orthodontist shall require, as a condition to an additional orthodontist
becoming a shareholder of the Orthodontic Entity, that such shareholder execute
an agreement in form and substance similar to this Agreement or become a party
to this Agreement by amendment hereto.
SECTION 4.11 CURRENT ORTHODONTIC PRACTICE. Notwithstanding anything
contained herein, in the Orthodontic Entity Professional Employment Agreements
or in the Acquisition Agreement to the contrary, Apple agrees to permit
Orthodontist to maintain the orthodontic practice described in Section 3.07 of
the Disclosure Statement, and that such arrangement will not violate any
provision of any agreement entered into in connection with the Acquisition.
ARTICLE V
RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by Apple
hereunder shall be feasible only if the Orthodontic Entity and Orthodontist
operate an active orthodontic practice to which the orthodontists associated
with the Orthodontic Entity devote their full business time and attention.
Accordingly, the parties hereto agree as follows:
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SECTION 5.1 RESTRICTIVE COVENANTS BY THE ORTHODONTIC ENTITY.
(a) During the term of this Agreement and for a period of two
years after termination of this Agreement for any reason other than
pursuant to SECTION 9.3 hereof, the Orthodontic Entity shall not without
the prior written consent of Apple (i) establish, operate or provide
orthodontic services at any orthodontic office, clinic or other health
care facility providing services similar to those provided by the
Orthodontic Entity, or (ii) engage or participate in any business which
engages in competition with the business conducted by AOI Group; in
either case anywhere within 25 miles of any Premises.
(b) The Orthodontic Entity agrees that in the event of a breach
of SECTION 5.1(a) above, the Orthodontic Entity shall pay to Apple an
amount equal to the greater of (i) $200,000, and (ii) an amount equal to
the gross cash receipts of the Orthodontic Entity for the preceding
twelve (12) months.
(c) The Orthodontic Entity agrees that the noncompetition
restrictions set forth in this Agreement are reasonable as to time and
geographic area.
SECTION 5.2 RESTRICTIVE COVENANTS OF ORTHODONTIST.
(a) Orthodontist agrees and acknowledges that, until the later of
(i) the expiration of the fifth anniversary of the date of this
Agreement, or (ii) five years from the date Orthodontist becomes a
shareholder of the Orthodontic Entity, Orthodontist will devote
Orthodontist's full business time and attention to rendering
professional services on behalf of the Orthodontic Entity and in
furtherance of the Orthodontic Entity's best interest.
(b) Orthodontist hereby agrees that during the period set forth
in SECTION 5.2(a) above and for a period of two (2) years after the
termination of this Agreement for any reason other than termination of
this Agreement as to the Orthodontist pursuant to SECTION 9.3 hereof,
Orthodontist will not (i) directly or indirectly establish, operate or
provide orthodontist services at any orthodontic office, clinic or other
facility providing services similar to those provided by the Orthodontic
Entity or engage or participate in or finance any business which engages
in direct competition with the business being conducted by AOI Group, in
either case, anywhere within 25 miles of any Premises, (ii) directly or
indirectly compete with the Orthodontic Entity or member of the AOI
Group in any way, (iii) act as an officer, director, employee,
consultant, shareholder, lender, guarantor or agent of, or otherwise
assist any entity which is engaged in any business of the same nature
as, or in direct competition with, the business in which the AOI Group
is now engaged or other business in which the AOI Group becomes engaged,
or (iv) induce or attempt to influence any employee of the AOI Group to
terminate his or her employment, or to hire any such employee, whether
or not so induced or influenced, except that any such employee may be
hired with the prior written consent of AOI.
(c) Orthodontist agrees that in the event of a breach of SECTION
5.2(a) above, Orthodontist shall pay to Apple an amount equal to the
greater of (i) $200,000, and (ii)
16
an amount equal to the gross cash receipts of the Orthodontic Entity for
the preceding twelve (12) months.
(d) Orthodontist agrees that in the event of a breach of SECTION
5.2(b) above, Orthodontist shall pay to Apple an amount equal to the
greater of (i) $200,000, and (ii) an amount equal to the gross cash
receipts of the Orthodontic Entity for the preceding twelve (12) months.
(e) Orthodontist acknowledges and recognizes that enforcement of
SECTIONS 5.2(a) and 5.2(b) above by Apple will not interfere with
Orthodontist's ability to pursue a proper livelihood. Orthodontist
agrees that the noncompetition restrictions set forth in this Agreement
are reasonable as to time and geographic area.
Notwithstanding the foregoing, however, this SECTION 5.2 shall not
prohibit Orthodontist or any of his or her Affiliates (including the
Orthodontic Entity) from purchasing or holding an aggregate publicly
traded equity interest of up to 2%, so long as Orthodontist and his or
her affiliates (including the Orthodontic Entity and the other
orthodontist owning an equity interest in the Orthodontic Entity) do not
purchase or hold an aggregate equity interest of more than 5% in any
business in direct competition with the AOI Group.
SECTION 5.3 ACKNOWLEDGEMENT OF PROPRIETARY INTEREST. The Orthodontic
Entity and Orthodontist recognize the proprietary interest of AOI Group in any
Confidential and Proprietary Information (as hereinafter defined) of AOI Group.
The Orthodontic Entity and Orthodontist acknowledge and agree that any and all
Confidential and Proprietary Information communicated to, learned of, developed
or otherwise acquired by the Orthodontic Entity and Orthodontist during the term
of this Agreement shall be the property of AOI Group. The Orthodontic Entity and
Orthodontist further acknowledge and understand that their disclosure of any
Confidential and Proprietary Information will result in irreparable injury and
damage to AOI Group. As used herein, "Confidential and Proprietary Information"
means all trade secrets and other confidential and/or proprietary information of
AOI Group, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, financial projections,
cost summaries, pricing formula, contracts analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information (other than the Orthodontic Entity's and Orthodontist's original
patient records) prepared or performed for, by or on behalf of AOI Group by its
employees, officers, directors, agents, representatives, or consultants.
SECTION 5.4 COVENANT NOT-TO-DIVULGE CONFIDENTIAL AND PROPRIETARY
INFORMATION. The Orthodontic Entity and Orthodontist acknowledge and agree that
AOI Group is entitled to prevent the disclosure of Confidential and Proprietary
Information. The Orthodontic Entity and Orthodontist agree at all times during
the term of this Agreement and thereafter to hold in strictest confidence and
not to disclose to any person, firm or corporation, other than to Orthodontic
Entity Professional Employees and persons engaged by Apple to further the
business of the Orthodontic Entity, and not to use except in the pursuit of the
business of AOI Group, Confidential and Proprietary Information, without the
prior written consent of Apple; unless (i) such information becomes known or
available to the public generally through no wrongful act
17
of the Orthodontic Entity or Orthodontist or its employees, (ii) disclosure is
required by law or the rule, regulation or order of any governmental authority
under color of law, provided, that prior to disclosing any Confidential and
Proprietary Information pursuant to this clause (ii), the Orthodontic Entity and
Orthodontist shall, if possible, give prior written notice thereof to Apple and
provide Apple with the opportunity to contest such disclosure, or (iii) the
Orthodontic Entity and Orthodontist reasonably believe that such disclosure is
required in connection with a lawsuit to which the Orthodontic Entity or
Orthodontist is a party.
SECTION 5.5 RETURN OF MATERIALS TO APPLE. In the event of any
termination of this Agreement for any reason whatsoever, or at any time upon the
request of Apple, the Orthodontic Entity or the Orthodontist for whom the
termination is applicable will promptly deliver to Apple all documents, data and
other information in the Orthodontic Entity's or Orthodontist's possession that
contains any Confidential and Proprietary Information. The Orthodontic Entity
and Orthodontist shall not take or retain any documents or other information, or
any reproduction or excerpt thereof, containing any Confidential and Proprietary
Information, unless otherwise authorized in writing by Apple.
SECTION 5.6 [INTENTIONALLY DELETED].
SECTION 5.7 RESTRICTIVE COVENANTS OF ORTHODONTIC ENTITY PROFESSIONAL
EMPLOYEES. Each Orthodontic Entity Professional Employment Agreement contains
certain restrictive covenants thereof pertaining to covenants not to compete
with and not to divulge the confidential and proprietary information of Apple,
Orthodontist and the Orthodontic Entity. During the term of this Agreement, the
Orthodontic Entity and Orthodontist shall obtain written agreements which
contain restrictive covenants in substantially the same form from each
Orthodontic Entity Professional Employee (other than Orthodontic Entity
Employees) associated with the Orthodontic Entity or Orthodontist after the date
hereof. Except with respect to sections of the Orthodontic Entity Professional
Employment Agreements pertaining to matters of compensation, during the term of
this Agreement, the Orthodontic Entity and Orthodontist shall not amend, alter
or otherwise change any term or provision of any Orthodontic Entity Professional
Employment Agreement without the prior written consent of AOI, which consent
shall not be unreasonably withheld. Following termination of this Agreement, the
Orthodontic Entity and Orthodontist shall not amend, alter or otherwise change
any term or provision of the restrictive covenants contained in such Orthodontic
Entity Professional Employment Agreement unless such provisions are no longer in
force and effect pursuant to the terms of the applicable agreement at the time
of termination of this Agreement.
SECTION 5.8 RESTRICTIVE COVENANTS OF APPLE. Apple hereby agrees that
during the term of this Agreement, it will not engage or participate in or
finance any orthodontist's practice (whether through the acquisition of another
existing orthodontic practice, affiliation with another orthodontist or the
opening of a satellite office) anywhere within 3 miles of any location from
which the Orthodontic Entity provides orthodontic services to patients on the
date hereof (each an "Orthodontic Entity Location") without the prior written
consent of the Orthodontist.
SECTION 5.9 REMEDIES. Apple, Orthodontist and the Orthodontic Entity
acknowledge and agree that a remedy at law for any breach or attempted breach of
the provisions of this ARTICLE shall be inadequate, and therefore, either party
shall be entitled to specific performance
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and injunctive or other equitable relief in the event of any such breach or
attempted breach, in addition to any other rights or remedies available to
either party at law or in equity. Each party hereto waives any requirement for
the securing or posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief. If any provision of the restrictive
covenants contained in the Orthodontic Entity Professional Employment Agreements
or this ARTICLE V relating to the restrictive period, scope of activity
restricted and/or the territory described therein shall be declared by a court
of competent jurisdiction to exceed the maximum time period, scope of activity
restricted or geographical area such court deems reasonable and enforceable
under applicable law, the time period, scope of activity restricted and/or area
of restriction held reasonable and enforceable by the court shall thereafter be
the restrictive period, scope of activity restricted and/or the territory
applicable to such provision of the restrictive covenants or this ARTICLE V. The
invalidity or non-enforceability of any provision of the restrictive covenants
or this ARTICLE V in any respect shall not affect the validity or enforceability
of the remainder of the restrictive covenants or this ARTICLE V or of any other
provisions of this Agreement.
ARTICLE VI
FINANCIAL AND SECURITY ARRANGEMENTS
The Orthodontic Entity and Apple agree that the compensation set forth
in this ARTICLE VI is being paid to Apple in consideration of the services
provided and the substantial commitment and effort made by Apple hereunder and
that such fees have been negotiated at arm's length, and are fair and reasonable
and consistent with fair market value.
SECTION 6.1 SERVICE FEES. Apple shall be paid the following:
(a) Apple shall be reimbursed for the amount of all Orthodontic
Entity and Orthodontist Expenses and Excluded Orthodontic Entity and
Orthodontist Expenses incurred by Apple pursuant to the terms of this
Agreement; and
(b) Apple shall receive monthly compensation equal to $12,083.33
as adjusted pursuant to Section 6.2 (the "Service Fee").
SECTION 6.2 ADJUSTMENTS TO SERVICE FEE. On or before September 30 of
each year during the term of this Agreement, beginning September 30, 1997, the
parties shall review and negotiate in good faith (based on the fair value of
services provided hereunder and the original intent of the parties in entering
into this Agreement) to adjust prospectively the Service Fee for the following
calendar year, to be effective as of January 1 of such following calendar year.
If the parties cannot agree on the amount of such new Service Fee by September
30, then the existing Service Fee shall remain in effect, with an appropriate
adjustment to be made for inflation based on the Consumer Price Index published
for __________________.
SECTION 6.3 WORKING CAPITAL LOANS. As part of the services provided by
Apple hereunder, Apple may make available loans to assist the Orthodontic Entity
in maintaining reasonable cash flow for the payment of Excluded Orthodontic
Entity and Orthodontist Expenses.
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(a) Initial Working Capital. Apple shall make available to the
Orthodontic Entity an interest free line of credit ("Initial Working Capital
Line") for the initial working capital needs of the Orthodontic Entity, up to a
maximum amount equal to the reduction in Net Operating Amount attributable to
changes in patient payment schedules. The Orthodontic Entity shall be entitled
to draw funds from the Initial Working Capital Line up until six (6) months
after the Acquisition Closing Date ("Loan Termination Date"). The amount, if
any, of the Initial Working Capital Line outstanding on the Loan Termination
Date shall be repaid, in equal monthly installments (without interest) over a
two-year period commencing on the Loan Termination Date.
(b) Subsequent Working Capital. Apple may make available to the
Orthodontic Entity loans for subsequent working capital requirements in amounts
not to exceed Excluded Orthodontic Entity and Orthodontic Expenses. Such loans
shall accrue interest beginning on the day of the advance at an interest rate
equal to the prime rate then in effect, plus 1%. The loans, if any, shall be
repaid to Apple out of the Net Operating Amount generated in subsequent months
and become immediately due and payable if the Orthodontist terminates his
employment with the Orthodontic Entity, for any reason.
Any principle or interest paid to Apple by the Orthodontic Entity
pursuant to Sections 6.3(a) or 6.3(b) are Excluded Orthodontic Entity and
Orthodontist Expenses.
SECTION 6.4 SECURITY AGREEMENT. To secure their obligations hereunder,
the Orthodontic Entity and Orthodontist shall execute a Security Agreement in
substantially the form attached hereto as EXHIBIT 6.4 (the "Security
Agreement"), which Security Agreement grants a security interest in all of the
Orthodontic Entity's and Orthodontist's accounts receivable (as more fully
described in the Security Agreement) to Apple. In addition, the Orthodontic
Entity and Orthodontist shall cooperate with Apple and execute all necessary
documents in connection with the pledge of such accounts receivable to Apple or
at Apple's option, its lenders. All collections in respect of such accounts
receivable shall be deposited in a bank account at a bank designated by Apple.
To the extent that the Orthodontic Entity or Orthodontist comes into possession
of any payments in respect of such accounts receivable, the Orthodontic Entity
or Orthodontist shall promptly remit such payments to Apple.
ARTICLE VII
RECORDS
SECTION 7.1 RECORDS OWNED BY APPLE. All records (other than patients'
orthodontic records) relating in any way to the operation of the Orthodontic
Entity shall at all times be the property of Apple. During the term of, and upon
termination, of this Agreement, to the extent permitted by law, and expressly
acknowledging the confidential nature of same, Apple shall be entitled to have
access to and copy and retain such copies of patient orthodontic records.
SECTION 7.2 ACCESS TO RECORDS. During the term of this Agreement, and
for a reasonable time thereafter, the Orthodontic Entity and Orthodontists or
their respective agents shall have reasonable access during normal business
hours to the Orthodontic Entity's and Apple's financial records, including, but
not limited to, records of collections, expenses and
20
disbursement as kept by Apple in performing Apple's obligations under this
Agreement, and the Orthodontic Entity and Orthodontist may copy any or all such
records.
ARTICLE VIII
INSURANCE AND INDEMNITY
SECTION 8.1 INSURANCE TO BE MAINTAINED BY THE ORTHODONTIC ENTITY AND
ORTHODONTIST. During the term of this Agreement, the Orthodontic Entity and
Orthodontist shall maintain comprehensive professional liability insurance with
such carrier as determined jointly by Apple and the Orthodontic Entity, with
limits of not less than $1,000,000 per claim and with aggregate policy limits of
not less than $3,000,000 per orthodontist and a separate limit for the
Orthodontic Entity (each such amount being subject to adjustment every three
years based on cost of living increases during any such period) with such
deductible as is mutually agreeable by Apple and the Orthodontic Entity. All
malpractice premiums and deductibles related thereto that are paid by Apple
shall be included in Orthodontic Entity and Orthodontist Expenses. All costs,
expenses and liabilities incurred by Orthodontic Entity, Orthodontist or Apple
in excess of the limits of such policies shall be included in Excluded
Orthodontic Entity and Orthodontist Expenses. Apple shall have the option of
providing such professional liability insurance through an alternative program,
provided such program meets the requirements of the Insurance Commissioner of
the State of ______________. If Orthodontist's existing professional liability
insurance program is cancelled and replaced by a professional liability
insurance program initiated by Apple, Apple shall pay over to Orthodontist any
unearned professional liability insurance premiums paid by Orthodontist to the
extent Orthodontist's carrier pays such amounts to Apple.
SECTION 8.2 INSURANCE TO BE MAINTAINED BY APPLE. During the term of this
Agreement, Apple will use reasonable efforts to provide and maintain, as a
Orthodontic Entity and Orthodontist Expense, comprehensive professional
liability insurance for all professional employees of Apple, and comprehensive
general liability and property insurance covering the Orthodontic Entity
premises and operations with such limits as determined reasonable and
appropriate by Apple and after obtaining the Orthodontic Entity's approval to
purchase any such insurance.
SECTION 8.3 CONTINUING LIABILITY INSURANCE COVERAGE. The Orthodontic
Entity and Orthodontist shall obtain or require each of Orthodontist and their
Orthodontic Entity Professional Employees to obtain continuing liability
insurance coverage under either a "tail policy" or a "prior acts policy," with
the same limits and deductibles as the insurance coverage provided pursuant to
SECTION 8.1 for each orthodontist associated with the Orthodontic Entity upon
the termination of such orthodontist's relationship with the Orthodontic Entity
for any reason. In the event that neither the Orthodontic Entity, Orthodontist
nor the Orthodontic Entity Professional Employees obtains such continuing
liability insurance coverage, Apple may do so. The costs of continuing liability
insurance coverage shall be included in Orthodontic Entity and Orthodontist
Expenses unless such cost is borne by Orthodontist or the Orthodontic Entity
Professional Employee.
21
SECTION 8.4 ADDITIONAL INSUREDS. The Orthodontic Entity, Orthodontist
and Apple agree to use their reasonable efforts to have each other named as an
additional insured on the other's respective professional liability insurance
programs. The additional cost, if any, associated therewith shall be paid by
Apple and shall be a Orthodontic Entity and Orthodontist Expense.
SECTION 8.5 INDEMNIFICATION. To the extent permitted under insurance
policies in place on the date hereof or policies to be entered into with
insurers acceptable to Apple, the Orthodontic Entity and Orthodontist, jointly
and severally, shall indemnify, defend and hold Apple, its officers, directors,
stockholders, employees, agents and consultants (other than such persons who are
also officers, directors, shareholders, employees, agents or consultants of the
Orthodontic Entity) harmless, from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees), whether or not covered by insurance (including self-insured insurance and
reserves), whenever arising or incurred, that are caused or asserted to have
been caused, directly or indirectly, by or as a result of the performance of
orthodontic services or the performance of any intentional acts, negligent acts
or omissions by Orthodontist, the Orthodontic Entity and/or its shareholders,
agents, employees and/or subcontractors (other than Apple) during the term of
this Agreement. Apple shall indemnify, defend and hold Orthodontist and the
Orthodontic Entity, its officers, shareholders, directors, employees, agents and
consultants, harmless from and against any and all liabilities, losses, damages,
claims, causes of action and expenses (including reasonable attorneys' fees),
whether or not covered by insurance (including self-insured insurance and
reserves) that are caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by Apple and/or its stockholders, agents, employees
and/or subcontractors (other than the Orthodontic Entity) during the term of
this Agreement.
ARTICLE IX
TERM AND TERMINATION
SECTION 9.1 TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the 20th anniversary hereof unless earlier terminated
pursuant to the terms of either SECTION 9.3 or SECTION 9.4 or automatically
extended pursuant to the terms of SECTION 9.2.
SECTION 9.2 EXTENDED TERM. Unless earlier terminated as provided for in
either SECTION 9.3 or SECTION 9.4, the term of this Agreement shall be
automatically extended for additional terms of five (5) years each, unless
either party delivers to the other party, not less than twelve (12) months nor
earlier than fifteen (15) months prior to the expiration of the preceding term,
written notice of such party's intention not to extend the term of this
Agreement.
SECTION 9.3 TERMINATION BY THE ORTHODONTIC ENTITY AND ORTHODONTIST. The
Orthodontic Entity or Orthodontist may terminate this Agreement with respect to
such party by giving written notice thereof to Apple (after the giving of any
required notices and the expiration
22
of any applicable waiting periods set forth below) upon the occurrence of any
the following events:
(a) Apple shall admit in writing its inability to generally pay
its debts when due, apply for or consent to the appointment of a
trustee, receiver or liquidator of all or substantially all of its
assets, file a petition in voluntary bankruptcy or make an assignment
for the benefit of creditors, or upon other action taken or suffered by
Apple, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors, except for the filing of a petition in
involuntary bankruptcy against Apple, as the case may be, which is
dismissed within sixty (60) days thereafter.
(b) Apple shall default in the performance of any material duty
or material obligation imposed upon it by this Agreement and such
default shall continue for a period of forty-five (45) days after
written notice thereof has been given to Apple by the Orthodontic Entity
or Orthodontist, provided that the Orthodontic Entity may terminate this
Agreement, if and only if, such termination shall have been approved by
the affirmative vote of the holders of two-thirds of the interests of
the shareholders of the Orthodontic Entity.
SECTION 9.4 TERMINATION BY APPLE. Apple may terminate this Agreement in
its entirety or with respect to the Orthodontic Entity or Orthodontist by giving
written notice thereof to the Orthodontic Entity and Orthodontist (after the
giving of any required notices and the expiration of any applicable waiting
periods set forth below) upon the occurrence of any the following events:
(a) The Orthodontic Entity or Orthodontist shall admit in writing
its inability to generally pay its debts when due, apply for or consent
to the appointment of a trustee, receiver or liquidator of all or
substantially all of its assets, file a petition in voluntary bankruptcy
or make an assignment for the benefit of creditors, or upon other action
taken or suffered by the Orthodontic Entity, voluntarily or
involuntarily, under any federal or state law for the benefit of
debtors, except for the filing of a petition in involuntary bankruptcy
against the Orthodontic Entity or Orthodontist which is dismissed within
sixty (60) days thereafter.
(b) The Orthodontic Entity or Orthodontist shall default in the
performance of any material duty or material obligation imposed upon it
by this Agreement and such default shall continue for a period of ninety
(90) days after written notice thereof has been given to the Orthodontic
Entity or Orthodontist by Apple.
(c) The Orthodontic Entity, Orthodontist or any Orthodontic
Entity Professional Employee (i) engages in any conduct for which the
Orthodontist's or such Orthodontic Entity Professional Employee's
license to practice orthodontics is revoked or suspended, or (ii) is the
subject of any restrictions or limitations by any governmental authority
to such an extent that he, she or it cannot engage in the practice of
orthodontics.
23
(d) With respect to Orthodontist, Orthodontist shall become
Disabled and Apple shall give notice of termination to Orthodontist's
estate within ninety (90) days of the date Apple becomes aware of such
Disability.
(e) With respect to Orthodontist, Orthodontist shall die.
SECTION 9.5 TERMINATION BY ORTHODONTIST.
(a) This Agreement shall terminate with respect to Orthodontist
in the event of a voluntary termination by the Orthodontist of his
Orthodontic Entity Professional Employment Agreement after the five (5)
year period set forth in SECTION 5.2(a); provided, however, that
Orthodontist shall give Apple at least one (1) year notice of such
voluntary termination. In the event termination with respect to the
Orthodontist in accordance with this SECTION 9.5, the restrictive
covenants contained in SECTION 5.2(b) shall apply with respect to
Orthodontist for two (2) years following the effective date of such
termination and not for the term of this Agreement.
(b) This Agreement (including the restrictive covenants in
Section ) shall terminate with respect to the Orthodontist in the event
(i) of the imposition (by a final, unappealable order) of any
restrictions or limitations by any governmental authority having
jurisdiction over the Orthodontist to such an extent that he cannot
engage in the professional practice of orthodontics for the five-year
period set forth in Section and (ii) this Agreement cannot be reformed
pursuant to Section or Section hereof to the extent necessary to render
such order inapplicable.
SECTION 9.6 EFFECTIVE DATE OF TERMINATION. Any termination of this
Agreement shall be effective (the "Termination Date") as follows:
(a) Immediately upon receipt of a termination notice pursuant to
either SECTION 9.3 or SECTION 9.4;
(b) Upon the expiration of this Agreement pursuant to SECTIONS
9.1 and 9.2; or
(c) If terminated for any reason other than as set forth in the
immediately preceding clauses (a) and (b), as of the Purchase Closing.
SECTION 9.7 PURCHASE OF ASSETS. Upon expiration or termination of this
Agreement for any reason other than pursuant to SECTION 9.4(d), SECTION 9.4(e)
or SECTION 9.5 hereof, the Orthodontic Entity shall have the option to, and
Apple shall have the option to require the Orthodontic Entity to,:
(a) Purchase from Apple at Fair Market Value all tangible assets
of Apple or its Affiliates that relate primarily to the Orthodontic
Entity other than Apple's accounting and financial records and other
records and files relating to the operation of the Orthodontic Entity
(the "Purchase Assets"), including, but not limited to, (i) all tangible
assets set forth on Apple's balance sheet as of the Termination Date
relating primarily
24
to the Orthodontic Entity, (ii) all equipment, furniture, fixtures,
furnishings, inventory, supplies, improvements, additions and leasehold
improvements utilized by the Orthodontic Entity, and (iii) any real
estate owned by Apple or an Affiliate that is exclusively associated
with the Orthodontic Entity; and
(b) Assume all liabilities, debt, payables and other obligations
(including lease and other contractual obligations) of Apple and any of
its Affiliates which relate exclusively to the Orthodontic Entity or to
the performance of Apple's obligations under this Agreement (the
"Orthodontic Entity Related Liabilities").
The Orthodontic Entity shall be able to exercise its option under this Section
(unless this Agreement is terminated pursuant to SECTION 9.4) and Apple shall be
able to exercise its option under this Section (unless this Agreement is
terminated pursuant to SECTION 9.3) by giving written notice thereof in the
Termination Notice, if applicable, or prior to ninety (90) days before the
Termination Date if this Agreement is terminated pursuant to SECTIONS 9.1 and
9.2. In connection with the purchase and sale of the Purchase Assets pursuant to
this SECTION 9.7, Apple shall cause the Purchase Assets to be conveyed free of
any lien, claim or encumbrance, other than those arising out of the Orthodontic
Entity Related Liabilities.
SECTION 9.8 TERMS OF PURCHASE. The closing of the transactions
contemplated by SECTION 9.7 (the "Purchase Closing") shall occur (a) on the
Termination Date if this Agreement expires pursuant to the terms of SECTIONS 9.1
and 9.2, or (b) on a date mutually acceptable to the parties hereto that shall
be within 180 days of receipt of a termination notice by the applicable party
pursuant to either SECTION 9.3 or 9.4. Subject to the conditions set forth
below, at the Purchase Closing, Apple shall transfer and assign the Purchase
Assets to the Orthodontic Entity, and in consideration therefor, the Orthodontic
Entity shall (a) pay to Apple an amount in cash equal to the Fair Market Value
of the Purchase Assets as of the Purchase Closing and (b) assume the Orthodontic
Entity Related Liabilities. Each party shall execute such documents or
instruments as is reasonably necessary, in the opinion of each party and its
counsel, to effect the foregoing transaction. The Orthodontic Entity shall, and
shall use its best efforts to cause each shareholder of the Orthodontic Entity
to, execute such documents or instruments as may be necessary to cause the
Orthodontic Entity to assume the Orthodontic Entity Related Liabilities and to
release Apple from any liability or obligation with respect thereto.
SECTION 9.9 EXCEPTION TO PURCHASE. Notwithstanding anything contained
herein to the contrary, Apple shall not be obligated to sell the Purchase Assets
to the Orthodontic Entity if the Orthodontic Entity is not able to pay the
Purchase Price in cash and assume the Orthodontic Entity Related Liabilities at
the Purchase Closing. In such event, the Orthodontic Entity shall surrender the
Purchase Assets to Apple as of the Purchase Closing. If the Orthodontic Entity
fails to so surrender the Purchase Assets, Apple may, without prejudice to any
other remedy which it may have hereunder or otherwise, enter the Premises and
take possession of the Purchase Assets and expel or remove the Orthodontic
Entity and any other person who may be occupying the Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor.
SECTION 9.10 EFFECT UPON TERMINATION. Upon the Termination Date, this
Agreement shall terminate and shall be of no further force and effect; provided,
however:
25
(a) Apple shall use its best efforts to cooperate with the
Orthodontic Entity and Orthodontist for the appropriate transfer of
management services.
(b) Each party hereto shall provide the other party with
reasonable access to books and records owned by it to permit such
requesting party to satisfy reporting and contractual obligations which
may be required of it.
(c) On the Termination Date, any amounts due and owing but unpaid
to either Apple or the Orthodontic Entity (including, without
limitation, any amounts due under the Initial Working Capital Line) as
of the Termination Date shall be paid promptly by the appropriate party.
(d) Any and all covenants and obligations of either party hereto
which by their terms or by reasonable implication are to be performed,
in whole or in part, after the termination of this Agreement, shall
survive such termination, including, without limitation, the obligations
of the parties pursuant to the following Sections: 4.5, 4.7, 5.1, 5.2,
5.4, 5.5, 5.6, 5.7, 5.8, 6.4, 7.2, 8.5, 9.8, 9.10 and the applicable
provisions of ARTICLE X.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 ASSIGNMENT. Apple shall have the right to assign its rights
hereunder to AOI or any direct or indirect wholly owned subsidiary of Apple. The
Orthodontic Entity and Orthodontist hereby agree that Apple has the right to
grant a security interest in its rights hereunder to any lending institution
from which Apple or the AOI obtains financing. The Orthodontic Entity and
Orthodontist shall not have the right to assign their rights or obligations
hereunder (i) to any person who is not a graduate of an accredited orthodontic
program or (ii) to any person who is a graduate of an accredited orthodontic
program without the prior written consent of Apple, which consent shall not be
unreasonably withheld. In the event the parties are unable to agree upon the
reasonableness of any such assignment, then each of Apple and the Orthodontist
shall each promptly thereafter select an arbitrator and Apple and the
Orthodontist shall each give prompt notice to the other of such appointment in
writing. The two arbitrators first appointed under the terms hereof shall,
within five (5) days after receipt of notification of selection, together select
a third arbitrator. The decision of the majority of arbitrators so appointed
shall be final and binding upon the parties hereto and may be enforced in any
court of competent jurisdiction. The expense of the arbitrators appointed by
each party shall be borne by the party appointing such arbitrator, and the
expense of the third arbitrator shall be borne by both parties equally. The
arbitrators shall give prompt notice in writing of their decision to each party.
SECTION 10.2 AMENDMENTS. This Agreement shall not be modified or amended
except by a written document executed by both parties to this Agreement, and
such written modification(s) or amendment(s) shall be attached hereto.
26
SECTION 10.3 WAIVER OF PROVISIONS. Any waiver of any terms and
conditions hereof must be in writing, and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
SECTION 10.4 ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by the
other party to implement or complete such party's obligations pursuant to this
Agreement.
SECTION 10.5 ATTORNEYS' FEES. If legal action is commenced by either
party to enforce or defend its rights under this Agreement, the prevailing party
in such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
SECTION 10.6 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the date hereof, are interpreted by judicial decision, a
regulatory agency or legal counsel in such a manner as to indicate that this
Agreement or any provision hereof may be in violation of such laws or
regulations, the Orthodontic Entity, Orthodontist and Apple shall amend this
Agreement as necessary to preserve the underlying economic and financial
arrangements between the Orthodontic Entity, Orthodontist and Apple and without
substantial economic detriment to either party. To the extent any act or service
required of Apple in this Agreement should be construed or deemed, by any
governmental authority, agency or court to constitute the practice of
orthodontics, the performance of said act or service by Apple shall be deemed
waived and forever unenforceable and the provisions of this SECTION 10.6 shall
be applicable. Neither party shall claim or assert illegality as a defense to
the enforcement of this Agreement or any provision hereof; instead, any such
purported illegality shall be resolved pursuant to the terms of this SECTION
10.6 and SECTION 10.10. In the event any governmental authority, agency or court
institutes proceedings against Apple, the Orthodontic Entity or the Orthodontist
challenging the legality, validity or enforceability of any provision of this
Agreement, Apple agrees that the fees, expenses and disbursements of counsel
engaged to represent Apple, the Orthodontic Entity and the Orthodontist shall be
Apple Expenses.
SECTION 10.7 PARTIES IN INTEREST; NO THIRD-PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be deemed to
confer upon any person not a party hereto or thereto any rights or remedies
hereunder or thereunder.
SECTION 10.8 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 10.9 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such
27
illegal, invalid or unenforceable provision never comprised a part hereof; and
the remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
SECTION 10.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF __________. THE PARTIES AGREE THAT THIS
AGREEMENT SHALL BE PERFORMABLE IN __________.
SECTION 10.11 NO WAIVER; REMEDIES CUMULATIVE. Apple shall not by any act
(except by written instrument pursuant to SECTION 10.3 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of Apple, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
SECTION 10.12 LANGUAGE CONSTRUCTION. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
SECTION 10.13 COMMUNICATIONS. The Orthodontic Entity, Orthodontist and
Apple agree that good communication between the parties is essential to the
successful performance of this Agreement, and each pledges to communicate fully
and clearly with the other on matters relating to the successful operation of
the Orthodontic Entity and the practice of orthodontics by Orthodontist.
SECTION 10.14 CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
SECTION 10.15 GENDER AND NUMBER. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
28
SECTION 10.16 REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 10.17 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to Apple: Apple Orthodontix, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: President
with a copy to: ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
If to the Orthodontic Entity:
---------------------------------
with a copy to:
SECTION 10.18 CHOICE OF FORUM. The parties hereto agree that should any
suit, action or proceeding arising out of this Agreement be instituted by any
party hereto (other than a suit, action or proceeding to enforce or realize upon
any final court judgment arising out of this Agreement), such suit, action or
proceeding shall be instituted only in a state or federal court in Houston,
Texas. Each of the parties hereto consents to the IN PERSONAM jurisdiction of
any state or federal court in Houston, Texas, and waives any objection to the
venue of any such suit, action or proceeding. The parties hereto recognize that
courts outside Houston, Texas, may also have jurisdiction over suits, actions or
proceedings arising out of this Agreement, and in the event that any party
hereto shall institute a proceeding involving this Agreement in a jurisdiction
outside Houston, Texas, the party instituting such proceeding shall indemnify
any other party hereto for any losses and expenses that may result from the
breach of the foregoing covenant to institute such proceeding only in a state or
federal court in Houston, Texas, including without limitation any additional
expenses incurred as a result of litigating in another jurisdiction, such
29
as reasonable fees and expenses of local counsel and travel and lodging expenses
for parties, witnesses, experts and support personnel.
SECTION 10.19 SERVICE OF PROCESS. Service of any and all process that
may be served on any party hereto in any suit, action or proceeding arising out
of this Agreement may be made in the manner and to the address set forth in
SECTION 10.17 and service thus made shall be taken and held to be valid personal
service upon such party by any party hereto on whose behalf such service is
made.
SECTION 10.20 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 10.21 DEFINED TERMS. Terms used in the Exhibits attached hereto
with their initial letter capitalized and not otherwise defined therein shall
have the meanings assigned to such terms in this Agreement.
30
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
Orthodontic Entity:
______________________________
By: __________________________
Title: _______________________
Orthodontist:
______________________________
_______________, D.D.S.
Apple:
APPLE ORTHODONTIX, INC.
By: __________________________
Title: _______________________
31
LIST OF EXHIBITS
Exhibit Description
------- -----------
1.1(u) Orthodontic Entity Professional Employment Agreements
6.4 Form of Security Agreement
EXHIBIT 1.1(U)
to the
Service Agreement dated _______________________, 1997
by and between
Apple Orthodontix, Inc.
-------------------------------
and
--------------------
ORTHODONTIC ENTITY PROFESSIONAL EMPLOYMENT AGREEMENT
EXHIBIT 6.4
to the
Service Agreement dated _______________________, 1997
by and between
Apple Orthodontix, Inc.
----------------------------------
and
-------------------
FORM OF SECURITY AGREEMENT