<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): JULY 18, 1996
-------------
FIRST COMMONWEALTH, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-27064 75-2154228
- ----------------------- ------------ -------------------
(State of incorporation (Commission (I.R.S. Employer
or organization) File Number) Identification No.)
444 NORTH WELLS STREET, SUITE 600, CHICAGO, IL 60610
----------------------------------------------------------
(Address of principal executives offices) (Zip Code)
Registrant's telephone number, including area code: (312) 644-1800
--------------
NOT APPLICABLE
--------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On July 18, 1996, First Commonwealth, Inc., a Delaware corporation (the
"Registrant"), acquired (the "Acquisition") all of the issued and outstanding
capital stock (the "Smileage Shares") of Smileage Dental Services, Inc., a
Wisconsin corporation ("Smileage"), pursuant to a Stock Exchange Agreement,
dated as of July 18, 1996 (the "Purchase Agreement"), among the Registrant and
all of the shareholders of Smileage (the "Shareholders"). Smileage had been
engaged in the dental care management business and will continue to conduct such
business under ownership of the Registrant.
The Acquisition was completed through a tax-free exchange of stock. The
purchase price for the Smileage Shares was an aggregate of 231,399 shares of
Common Stock, par value $.001 per share of the Registrant (the "Registrant
Shares"). Such consideration was arrived at through arm's length negotiations
between the Shareholders and the Registrant. The source of the Registrant Shares
was previously authorized but unissued shares of Common Stock of the Registrant.
There were no prior material relationships between the Registrant or any of
the Registrant's affiliates, any director or officer of Registrant, or any
associate of any such director or officer, on the one hand, and Smileage or the
Shareholders, on the other hand.
Additional information concerning the Acquisition is also contained in the
Purchase Agreement, a copy of which is attached hereto as an exhibit and is
incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
The Registrant has determined that it is impracticable at this time to
provide the financial statements of Smileage that may be required. If required,
the Registrant will file such financial statements under cover of an amendment
to this Form 8-K as soon as practicable, but in any event within 60 days from
the due date hereof.
(b) Pro Forma Financial Information
The Registrant has determined that it is impracticable at this time to
provide the pro forma financial information that may be required. If required,
the Registrant will file such pro forma financial information under cover of an
amendment to this Form 8-K as soon as practicable, but in any event within 60
days from the due date hereof.
-2-
<PAGE>
(c) Exhibits
2.1 Stock Exchange Agreement, dated July 18, 1996, by and among First
Commonwealth, Inc. and the Shareholders of Smileage Dental Services,
Inc.
99.1 Registration Rights Agreement, dated July 18, 1996, between First
Commonwealth, Inc. and the Holders of Registrable Securities
Referred to Therein
99.2 Wisconsin Dental Provider Network Agreement, dated July 18, 1996,
between Smileage Dental Services, Inc. and Smileage Dental Care,
Inc.
99.3 Press Release of Registrant, dated July 19, 1996
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 2, 1996 FIRST COMMONWEALTH, INC.
(Registrant)
By: /s/ Christopher C. Multhauf
------------------------------------
Christopher C. Multhauf
Chairman and Chief Executive Officer
-4-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Stock Exchange Agreement, dated July 18, 1996, by and among First
Commonwealth, Inc. and the Shareholders of Smileage Dental
Services, Inc.
99.1 Registration Rights Agreement, dated July 18, 1996, between First
Commonwealth, Inc. And the Holders of Registrable Securities
Referred to Therein
99.2 Wisconsin Dental Provider Network Agreement, dated July 18, 1996,
between Smileage Dental Services, Inc. and Smileage Dental Care,
Inc.
99.3 Press Release of Registrant, dated July 19, 1996
-5-
<PAGE>
EXHIBIT 2.1
STOCK EXCHANGE AGREEMENT
DATED AS OF JULY 18, 1996
AMONG
FIRST COMMONWEALTH, INC.,
SMILEAGE DENTAL SERVICES, INC.,
THE STOCKHOLDERS OF SMILEAGE DENTAL SERVICES, INC.
LISTED ON THE SIGNATURE PAGES HERETO
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 Definitions.............................................................. 1
ARTICLE II
EXCHANGE OF SHARES; PURCHASE PRICE
2.1 Exchange of Shares....................................................... 9
2.2 Purchase Price........................................................... 9
2.3 Fractional Shares........................................................ 9
2.4 Changes in Buyer Common Stock............................................ 9
2.5 Conversion of Option..................................................... 9
ARTICLE III
CLOSING
3.1 Closing Date............................................................ 10
3.2 Buyer's Deliveries...................................................... 10
3.3 The Company's Deliveries................................................ 10
3.4 Stockholders' Deliveries................................................ 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
--------------------
4.1 Organization and Capital Structure...................................... 12
4.2 Subsidiaries and Investments............................................ 13
4.3 Authority............................................................... 13
4.4 Financial Statements.................................................... 15
4.5 Operations in Recent Periods............................................ 16
4.6 No Undisclosed Liabilities.............................................. 18
4.7 Taxes................................................................... 18
4.8 Availability of Assets.................................................. 19
4.9 Governmental Permits.................................................... 19
4.10 Real Property........................................................... 20
4.11 Real Property Leases.................................................... 20
4.12 Personal Property....................................................... 20
4.13 Personal Property Leases................................................ 20
4.14 Intellectual Property Software.......................................... 21
4.15 Accounts Receivable..................................................... 21
4.16 Title to Property....................................................... 21
4.17 Employee Relations...................................................... 21
4.18 Employee Benefit Plans.................................................. 22
4.19 Contracts............................................................... 26
4.20 Status of Contracts..................................................... 27
4.21 No Violation, Litigation or Regulatory Action........................... 28
4.22 Environmental Matters................................................... 28
4.23 Insurance............................................................... 29
</TABLE>
-i-
<PAGE>
Page
----
4.24 No Finder....................................................... 30
4.25 Budgets......................................................... 30
4.26 Disclosure...................................................... 30
4.27 Reorganization.................................................. 30
4.28 Buyer Common Stock.............................................. 31
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
5.1 Organization.................................................... 32
5.2 Authority....................................................... 32
5.3 No Finder....................................................... 33
5.4 Buyer SEC Documents............................................. 34
ARTICLE VI
ACTION PRIOR TO THE CLOSING DATE
--------------------------------
6.1 Investigation of the Company.................................... 34
6.2 Preserve Accuracy of Representations and
Warranties...................................................... 34
6.3 Consents of Third Parties; Governmental Approvals............... 35
6.4 Conduct of Business by the Company Pending the
Transaction..................................................... 35
6.5 Notification of Certain Matters................................. 38
6.6 Mutual Cooperation; Reasonable Best Efforts..................... 38
6.7 No Solicitation................................................. 38
6.8 Subsequent Financial Statements................................. 39
6.9 Wisconsin OCI Filing............................................ 39
6.10 Adjustment Procedures for 1996 Annualized Management
Fee Revenue..................................................... 39
6.11 Financial Reports............................................... 40
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
7.1 Assumption Reinsurance Agreement................................ 40
7.2 Covenant Not To Compete......................................... 40
7.3 Solicitation and Purchase of Buyer Common Stock................. 42
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
8.1 No Misrepresentation or Breach of Covenants and
Warranties...................................................... 42
8.2 No Changes or Destruction of Property........................... 42
8.3 No Restraint or Litigation...................................... 42
8.4 Necessary Governmental Approvals................................ 43
8.5 Necessary Consents.............................................. 43
8.6 Assumption Reinsurance Agreement................................ 43
8.7 SDC Provider Agreement.......................................... 43
8.8 Termination of Agreements....................................... 43
-ii-
<PAGE>
Page
----
8.9 Determination of 1996 Annualized Management Fee
Revenue............................................................ 43
8.10 Payment of Granbow Settlement...................................... 43
8.11 Deike Option....................................................... 43
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND THE STOCKHOLDERS
-----------------------------------
9.1 No Misrepresentation or Breach of Covenants and
Warranties......................................................... 44
9.2 No Restraint or Litigation......................................... 44
9.3 Necessary Governmental Approvals................................... 44
9.4 Determination of 1996 Annualized Management Fee
Revenue............................................................ 44
ARTICLE X
INDEMNIFICATION
---------------
10.1 Indemnification by the Stockholders................................ 44
10.2 Notice and Determination of Claims................................. 46
10.3 Third Person Claims................................................ 46
ARTICLE XI
TAXES
-----
11.1 Liability for Taxes................................................ 47
11.2 Filing of Tax Returns.............................................. 48
11.3 Contest Provisions................................................. 49
11.4 Assistance and Cooperation......................................... 50
11.5 After-Tax Basis; Adjustment to Purchase Price...................... 50
11.6 Survival of Obligations............................................ 50
11.7 Relationship of Indemnities........................................ 50
ARTICLE XII
TERMINATION
-----------
12.1 Termination Rights................................................. 51
12.2 Notice of Termination.............................................. 51
12.3 Effect of Termination.............................................. 52
ARTICLE XIII
GENERAL PROVISIONS
------------------
13.1 Survival of Obligations............................................ 52
13.2 Confidential Nature of Information................................. 52
13.3 No Public Announcement............................................. 53
13.4 Notices............................................................ 53
13.5 Successors and Assigns............................................. 54
13.6 Access to Records After Closing Date............................... 55
13.7 Entire Agreement; Amendments....................................... 55
-iii-
<PAGE>
Page
----
13.8 Interpretation.................................................... 55
13.9 Waivers........................................................... 55
13.10 Fees and Expenses................................................. 56
13.11 Partial Invalidity................................................ 56
13.12 Execution in Counterparts......................................... 56
13.13 Further Assurances................................................ 56
13.14 Governing Law..................................................... 57
13.15 Submission to Jurisdiction........................................ 57
-iv-
<PAGE>
Exhibits
- --------
Exhibit A - Assumption Reinsurance Agreement
Exhibit B - Registration Rights Agreement
Exhibit C - SDC Provider Agreement
Exhibit D - Opinion of Sidley & Austin
Exhibit E - Opinion of Niebler & Muren
Schedules
- ---------
Schedule 4.1 - Stockholders and Shares Owned
Schedule 4.3(c) - No Conflicts of the Company
Schedule 4.3(d) - No Conflicts of the Stockholders
Schedule 4.4 - Financial Statements
Schedule 4.5(a) - Changes in Operations
Schedule 4.5(b) - Conduct of Business
Schedule 4.6 - No Undisclosed Liabilities
Schedule 4.7 - Taxes
Schedule 4.8 - Availability of Assets
Schedule 4.9(a) - Governmental Permits
Schedule 4.9(b) - Defaults Under Governmental Permits
Schedule 4.10 - Owned Real Property
Schedule 4.11 - Leased Real Property
Schedule 4.12 - Personal Property
Schedule 4.13 - Personal Property Leases
Schedule 4.16 - Title to Property
Schedule 4.18(a) - Employee Benefit Pension Plan
Schedule 4.18(b) - Non-Erisa Commitments
Schedule 4.18(h) - List of Employees and Compensation
Schedule 4.18(j) - Conflicts of Interest
Schedule 4.19 - Contracts
Schedule 4.20 - Status of Contracts
Schedule 4.21 - No Violation, Litigation or Regulatory Action
Schedule 4.23 - Insurance
Schedule 4.25 - Budgets
Schedule 7.2 - Existing Prepaid Dental Insurance Plans Served
Schedule 8.5 - Necessary Consents
[The Exhibits and Schedules to this Stock Exchange Agreement listed above are
not being filed herewith. The Registrant agrees to furnish supplementally a
copy of any omitted exhibit or schedule to the Commission upon request.]
-v-
<PAGE>
STOCK EXCHANGE AGREEMENT
STOCK EXCHANGE AGREEMENT, dated as of July 18, 1996 (this "Agreement"),
among First Commonwealth, Inc. a Delaware corporation ("Buyer"), Smileage Dental
Services, Inc. a Wisconsin corporation (the "Company"), Robert F. Chojnacki,
David H. Erickson, John Sebanc, Ann Sebanc, Trustee of the Ann Sebanc Trust,
Stephen F. Froehlich, Jesley C. Ruff, Gerald D. Patterson, and Don A. Deike,
(individually, a "Stockholder" and collectively, the "Stockholders").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has an authorized capital of (i) 2,801,400 shares of
common stock, par value $0.01 per share (the "Company Common Stock"), and
2,801,400 shares of preferred stock, par value $0.01 per share, of which 68,700
shares Company Common Stock are issued and outstanding and owned of record and
beneficially by the Stockholders (the "Shares"), 2,125 shares of Company Common
Stock are subject to exercise of an option by Don A. Deike for $.01 per share
(the "Option"), and no shares of Preferred Stock are issued or outstanding; and
WHEREAS, the Company is engaged in the business of providing administrative
services to insurance companies that provide managed dental care benefits; and
WHEREAS, the Stockholders intend to exchange all of the issued and
outstanding shares of Company Common Stock owned by the Stockholders for shares
of Buyer Common Stock pursuant to a transaction (the "Transaction") constituting
a reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended from time to time (the "Code"); and
WHEREAS, Buyer, the Company and the Stockholders desire to make certain
representations, warranties and agreements in connection with the Transaction
and to prescribe various conditions to the Transaction;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, it is hereby agreed among the parties as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In this Agreement, the following terms have the
meanings specified or referred to in this Section 1.1 and shall be equally
applicable to both the singular and plural forms. Reference herein to the neuter
gender includes the
<PAGE>
masculine and feminine where appropriate. Any agreement referred to below shall
mean such agreement as amended, supplemented and modified from time to time to
the extent permitted by the applicable provisions thereof and by this Agreement.
"ACQUISITION EXPENSES" has the meaning specified in Section 13.10.
"ACQUISITION PROPOSAL" has the meaning specified in Section 6.7.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"AGREEMENT" has the meaning specified in the first paragraph hereof.
"AFTER-TAX BASIS" means, with respect to any amount which is to be paid
hereunder on an "After-Tax Basis," an amount which, after subtraction of the
amount of all federal, state and foreign Taxes payable by the recipient thereof
as a result of the receipt or accrual of such payment, and after taking into
account (i) the increase in federal, state and foreign Taxes (including
estimated Taxes) payable by such recipient for all affected taxable years as a
result of the event or occurrence giving rise to such payment (the "Indemnified
Event"), and (ii) the reduction in federal, state and foreign Taxes (including
estimated Taxes) payable by the recipient for all applicable taxable years
ending on or before the end of the taxable year in which such payment is made,
shall be sufficient as of the date of payment to compensate the recipient for
such Indemnified Event.
"ASSOCIATE" has the meaning specified in Section 4.18(j).
"ASSUMPTION REINSURANCE AGREEMENT" means the Assumption Reinsurance
Agreement dated as of July 18, 1996 between SDI and FCLHSC substantially in the
form attached hereto as Exhibit A.
"BALANCE SHEET" means the unaudited balance sheet of the Company as of May
31, 1996 to be delivered as contemplated by Section 4.4.
"BALANCE SHEET DATE" means May 31, 1996.
"BUYER" has the meaning specified in the first paragraph of this Agreement.
"BUYER ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by Buyer under this Agreement or
in connection herewith.
-2-
<PAGE>
"BUYER COMMON STOCK" means the Common Stock, par value $.001 per share, of
Buyer.
"BUYER GROUP MEMBER" means Buyer and its Affiliates and their respective
successors and assigns, including, after the Closing Date, the Company.
"BUYER SEC DOCUMENTS" has the meaning specified in Section 5.4.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments thereto, any
successor statutes, and any regulations promulgated thereunder.
"CLAIM NOTICE" has the meaning specified in Section 10.2(a).
"CLOSING" means the closing of the Transaction in accordance with Article
III.
"CLOSING DATE" has the meaning specified in Section 3.1.
"CLOSING PRICE" means with respect to Buyer Common Stock on any business day
the last sale price, or the closing bid price if no sale occurred, of Buyer
Common Stock on the Nasdaq Stock Market.
"CODE" has the meaning specified in the third recital of this Agreement.
"COMPANY" has the meaning specified in the first paragraph of this
Agreement.
"COMPANY AGREEMENTS" has the meaning specified in Section 4.20.
"COMPANY ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by the Company under this
Agreement or in connection herewith.
"COMPANY COMMON STOCK" has the meaning specified in the first recital of
this Agreement.
"COMPANY GROUP" shall mean any "affiliated group" (as defined in Section
1504(a) of the Codes without regard to the limitations contained in Section
1504(b) of the Code) that, at any time on or before the Closing Date, includes
or has included the Company or any predecessor of or successor to the Company
(or another such predecessor or successor), or any other group of corporations
that, at any time on or before the Closing Date, files or has filed Tax Returns
on a combined, consolidated or unitary
-3-
<PAGE>
basis with the Company or any predecessor of or successor to the company (or
another such predecessor or successor).
"COMPANY PROPERTY" means any real or personal property, plant, building,
facility, structure, underground storage tank, equipment or unit, or other asset
owned, leased or operated by the Company.
"CONFIDENTIALITY AGREEMENT" means that certain Confidentiality Agreement
dated as of March 13, 1996 between Buyer and the Company, as amended by the
amendment dated as of May 30, 1996.
"CONTAMINANT" means any waste, pollutant, hazardous or toxic substance or
waste, petroleum, petroleum-based substance or waste, special waste, or any
constituent of any such substance or waste.
"CONVERSION AMOUNT" means the Total Conversion Amount divided by the sum of
the number of shares of Company Common Stock issued and outstanding as of the
Closing Date and the number of shares of Company Common Stock subject to the
Option.
"COURT ORDER" means any judgment, order, award or decree of any foreign,
federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"E&Y" has the meaning specified in Section 6.10.
"ENCUMBRANCE" means any lien, claim, charge, security interest, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect in
title, covenant or other restriction of any kind.
"ENVIRONMENTAL LAW" means all Requirements of Laws derived from or relating
to all federal, state and local laws or regulations relating to or addressing
the environment, health or safety, including but not limited to CERCLA, OSHA and
RCRA and any state equivalent thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" has the meaning specified in Section 4.18(j).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPENSE" means any and all expenses reasonably incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including, without
limitation, court filing
-4-
<PAGE>
fees, court costs, arbitration fees or costs, witness fees and reasonable fees
and disbursements of legal counsel, investigators, expert witnesses,
consultants, accountants and other professionals).
"FCLHSC" means First Commonwealth Limited Health Service Corporation, a
Wisconsin insurance company.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has the meaning specified in Section 4.9(a).
"INDEMNIFIED PERSON" has the meaning specified in Section 10.2.
"INDEMNITOR" has the meaning specified in Section 10.2(a).
"INDEPENDENT DENTAL PROVIDER" means any individual provider of dental
services, whether providing services as a sole practitioner, or as a
shareholder, partner, member, employee, or contractor of any entity, group, or
organization whatsoever, other than those dental providers employed or otherwise
contracted by SDC, including contracted speciality services, to provide dental
services in facilities owned, leased or managed by SDC.
"INTELLECTUAL PROPERTY" has the meaning specified in Section 4.14.
"IRS" means the Internal Revenue Service.
"JUNE REPORT" has the meaning specified in the definition of 1996
Annualized Management Fee Revenue.
"LOSS" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"MARGIN" has the meaning specified in Section 6.10.
"MATERIAL ADVERSE EFFECT" means any change or effect (or any development
that, insofar as can be reasonably foreseen, would result in any change or
effect) that is materially adverse to the assets, business, financial condition,
results of operations or prospects of the applicable Person or Persons.
"1996 ANNUALIZED MANAGEMENT FEE REVENUE" means the sum of (i) the aggregate
agent commission and (ii) the aggregate general administrative expenses, in each
case, as set forth on the Smileage Dental Services, Inc. Billing Disbursement
Report for June 1996 computed in accordance with the Company's historical
policies
-5-
<PAGE>
and practices, consistently applied (the "June Report"), multiplied by 12,
adjusted pursuant to the procedures specified in Section 6.10 to reflect (A) the
results of Buyer's audit of the eligibility, premium data and cash collections
of the Company, (B) any failure of any of the Milwaukee Public Schools or Local
75 Plumbers to give the Company a commitment to renew coverage, for at least one
year, prior to the Closing Date on terms and in a form reasonably satisfactory
to Buyer and (C) any failure to receive a consent from each of the Milwaukee
Public Schools and the City of Milwaukee for its contract to be transferred
pursuant to the Assumption Reinsurance Agreement.
"OPTION" has the meaning set forth in the first recital to this Agreement.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. (S)(S)
651 et seq., any amendment thereto, any successor statute, and any regulations
promulgated thereunder.
"PERMITTED ENCUMBRANCES" means (a) liens for taxes and other governmental
charges and assessments which are not yet due and payable, (b) liens of
landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the ordinary course of business for sums not yet due
and payable and (c) other liens or imperfections on property which are not
material in amount, do not interfere with, and are not violated by the
consummation of the transactions contemplated by, this Agreement, and do not
materially detract from the value or marketability of, or materially impair the
existing use of, the property affected by such lien or imperfection.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or Governmental Body.
"PREPAID DENTAL INSURANCE PLAN" means any organization that provides,
reimburses or indemnifies against the cost of, or arranges for the provision
of dental services in consideration of a periodic premium or prepaid payment.
"PRO FORMA BALANCE SHEET" has the meaning specified in Section 4.4.
"PROVIDER CONTRACTS" has the meaning specified in Section 4.19.
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. (S)(S)
6901 et seq., and any successor statute, and any regulations promulgated
thereunder.
"RELEASE" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant
into the indoor or outdoor
-6-
<PAGE>
environment or into or out of any Company Property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or any
Company Property.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement to be dated the Closing Date between Buyer and the Stockholders
substantially in the form of Exhibit B.
"REMEDIAL ACTION" means actions required to (i) clean up, remove, treat or
in any other way address Contaminants in the indoor or outdoor environment; (ii)
prevent the Release or threatened Release or minimize the further Release of
Contaminants or (iii) investigate and determine if a remedial response is needed
and to design such a response and post-remedial investigation, monitoring,
operation and maintenance and care.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
"SDC" means Smileage Dental Care, Inc., a Wisconsin corporation.
"SDC PROVIDER AGREEMENT" means a Provider Agreement between the Company and
SDC, substantially in the form of Exhibit C hereto.
"SDI" means Smileage Dental Insurance, Inc., a Wisconsin limited service
health organization organized under Chapter 6.13 Wis. Stats.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
"SHARES" has the meaning specified in the first recital of this Agreement.
"STOCK RESTRICTION AGREEMENT" has the meaning specified in Section 4.1(b).
"STOCKHOLDERS" has the meaning specified in the first paragraph of this
Agreement.
"STOCKHOLDER ANCILLARY AGREEMENTS" means all agreements, instruments
and documents being or to be executed and delivered by one or more of the
Stockholders under this Agreement or in connection herewith.
-7-
<PAGE>
"STRADDLE PERIOD" means any taxable year or period beginning before
and ending after the Closing Date.
"TAX" (and with correlative meaning "TAXES" and "TAXABLE") means:
(i) any federal, state, local or foreign net income, alternative or add-
on minimum, gross income, gross receipts, property, ad valorem, sales, use,
transfer, gains, license, franchise, severance, excise, employment, payroll,
environmental, windfall profit, withholding, stamp or any other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Body; and
(ii) any liability of the Company for the payment of amounts with respect
to payments of a type described in clause (i) as a result of being a member of
an affiliated, consolidated, combined or unitary group, or as a result of any
obligation of the Company under any Tax Sharing Arrangement or Tax indemnity
arrangement.
"TAX RETURN" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
"TAX SHARING ARRANGEMENT" means any written or unwritten agreement or
arrangement for the allocation or payment of Tax liabilities or payment for Tax
benefits with respect to a consolidated, combined or unitary Tax Return which
Tax Return includes the Company.
"TOTAL CONVERSION AMOUNT" means the 1996 Annualized Management Fee
Revenue multiplied by 3.46 and divided by 27.25; provided, however, that
if the product of (i) the number resulting from the above calculation and (ii)
the Closing Price of the Buyer Common Stock on the last business day prior to
the Closing Date yields a number that is greater than 6,600,000 then the Total
Conversion Amount shall be 6,600,000 divided by the Closing Price of the Buyer
Common Stock on the last business day prior to the Closing Date.
"WBCA" means the Wisconsin Business Corporation Act, as amended.
"WISCONSIN OCI" has the meaning specified in Section 6.9.
-8-
<PAGE>
ARTICLE II
EXCHANGE OF SHARES; PURCHASE PRICE
2.1 EXCHANGE OF SHARES. Upon the terms and subject to the conditions
of this Agreement, on the Closing Date, the Stockholders shall sell, transfer,
assign, convey and deliver to Buyer, and Buyer shall purchase from the
Stockholders, the Shares, free and clear of all Encumbrances (except for
Permitted Encumbrances).
2.2 PURCHASE PRICE. Subject to Section 2.3, the purchase price for
each Share shall be equal a number of shares of Buyer Common Stock equal to
the Conversion Amount.
2.3 FRACTIONAL SHARES. No certificates for fractions of shares of
Buyer Common Stock and no scrip or other certificates evidencing fractional
interests in such shares shall be issued pursuant to Section 2.1. If the
exchange of a Stockholder's aggregate holdings of Company Common Stock for
shares of Buyer Common Stock at any time results in a fractional share of
Buyer Common Stock or interest therein, the number of shares of Buyer Common
Stock to be paid to such Stockholder shall be rounded to the nearest whole
number or, if there is no nearest whole number, to the next higher number.
2.4 CHANGES IN BUYER COMMON STOCK. In the event that, during the
period between the date hereof and the Closing Date, any reclassification,
stock split, stock dividend or similar change in respect of the Buyer Common
Stock shall occur, then appropriate adjustment shall be made in the number of
shares of Buyer Common Stock and/or kind of securities issued as Buyer Common
Stock in order to provide the Stockholders with the same number of shares of
Buyer Common Stock and/or other securities that they would have received after
such reclassification, stock split, stock dividend or similar change if the
Closing Date had occurred immediately prior to such reclassification, stock
split, stock dividend or similar change (and all references herein to the Buyer
Common Stock shall be deemed to refer to such adjusted number and/or kind of
securities).
2.5 CONVERSION OF OPTION. The Option shall no longer represent a right to
acquire Company Common Stock and shall be converted into the right to acquire
the number of shares of Buyer Common Stock into which the shares of Company
Common Stock then subject to the Option would have been converted if such shares
had been issued and outstanding as of the Closing Date, such Option as so
modified to be exercisable up to the 90th day following the first date any
registration statement referred to in the Registration Rights Agreement shall
have become effective.
-9-
<PAGE>
ARTICLE III
CLOSING
3.1 CLOSING DATE. The Closing of the Transaction shall take place
at 10:00 A.M., local time, on the date hereof at the offices of Sidley & Austin,
One First National Plaza, Chicago, Illinois 60603, or such other date and time
as shall be agreed upon by the parties. The date on which the Closing is
actually held is hereinafter sometimes referred to as the "Closing Date."
3.2 BUYER'S DELIVERIES. Subject to fulfillment or waiver of the
conditions set forth in Article VIII, on the Closing Date Buyer shall deliver
to the Stockholders all of the following:
(a) a copy of the Certificate of Incorporation of Buyer, certified
as of a recent date by the Secretary of State of the State of Delaware;
(b) a certificate of good standing of Buyer, issued as of a recent
date by the Secretary of State of the State of Delaware;
(c) a certificate of the Secretary or an Assistant Secretary of
Buyer, dated the Closing Date, in form and substance reasonably satisfactory
to the Stockholders, as to (i) no amendments to the Certificate of Incorporation
of Buyer since a specified date; (ii) the By-laws of Buyer; (iii) the
resolutions of the Board of Directors of Buyer authorizing the execution and
performance of this Agreement and the transactions contemplated herein; and (iv)
the incumbency and signatures of the officers of Buyer executing this Agreement
and any Buyer Ancillary Agreement;
(d) an opinion of Sidley & Austin, counsel to Buyer, dated the
Closing Date, substantially in the form contained in Exhibit D;
(e) the certificate contemplated by Section 9.1, duly executed by
the Chief Executive Officer, President or any Vice President of Buyer;
(f) the Assumption Reinsurance Agreement, duly executed by FCLHSC;
and
(g) the Registration Rights Agreement, duly executed by Buyer.
3.3 THE COMPANY'S DELIVERIES. Subject to fulfillment or waiver of
the conditions set forth in Article IX, on the Closing Date the Company shall
deliver to Buyer all of the following:
(a) a copy of the Articles of Incorporation of the Company, certified
as of a recent date by the Secretary of State of the State of Wisconsin;
-10-
<PAGE>
(b) a certificate of good standing of the Company, issued as of a
recent date by the Secretary of State of the State of Wisconsin;
(c) a certificate of the Secretary or an Assistant Secretary of the
Company, dated the Closing Date, in form and substance reasonably satisfactory
to Buyer, as to (i) no amendments to the Articles of Incorporation of the
Company since a specified date; (ii) the By-laws of the Company; (iii) the
resolutions of the Board of Directors of the Company authorizing the execution
and performance of this Agreement and the transactions contemplated herein; and
(iv) the incumbency and signatures of the officers of the Company executing this
Agreement and any Company Ancillary Agreement;
(d) an opinion of Niebler & Muren, counsel to the Company and the
Stockholders, dated the Closing Date, substantially in the form contained in
Exhibit E;
(e) resignations of each of the officers and directors of the
Company, effective as of the Closing Date;
(f) the certificates contemplated by Sections 8.1 and 8.2, duly
executed by the President of the Company;
(g) evidence of termination of the Management Agreement dated as of
July 15, 1995 between the Company and SDI;
(h) the SDC Provider Agreement, duly executed by the Company;
3.4 STOCKHOLDERS' DELIVERIES. Subject to fulfillment or waiver of
the conditions set forth in Article X, on the Closing Date the Stockholders
shall deliver to Buyer all of the following:
(a) the certificates contemplated by Sections 8.1 and 8.2, duly
executed byf each such Stockholder;
(b) the certificates representing the Shares, each duly endorsed to
Buyer by the Stockholder transferring such certificate or accompanied by a duly
executed and witnessed stock power;
(c) the Assumption Reinsurance Agreement, duly executed by SDI; and
(d) the SDC Provider Agreement, duly executed by SDC; and
(e) the Registration Rights Agreement, duly executed by the
Stockholders.
-11-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
--------------------
As an inducement to Buyer enter into this Agreement and to consummate
the transactions contemplated hereby, the Company represents and warrants to
Buyer and agrees, and the Stockholders jointly and severally (except as
otherwise provided below) represent and warrant to Buyer and agree, as follows:
4.1 ORGANIZATION AND CAPITAL STRUCTURE.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wisconsin. No other jurisdiction
has demanded, requested or otherwise indicated that the Company is required to
qualify to transact business as a foreign corporation on account of the
ownership or leasing of its properties or the conduct of its business. The
Company has full power and authority to own or lease and to operate and use its
assets and to carry on its business as now conducted or proposed to be
conducted. True and complete copies of the Articles of Incorporation and all
amendments thereto and of the By-laws, as amended, of the Company have been
delivered to Buyer.
(b) The authorized capital of the Company consists of 2,801,400 shares of
Company Common Stock, of which 68,700 shares are issued and are outstanding,
17,400 are held as treasury shares and 2,125 shares are reserved for issuance
upon the exercise of the Option (the terms governing exercise of which are set
forth on Schedule 4.1), and 2,801,400 shares of preferred stock, none of which
have been issued or are outstanding. All of the issued and outstanding shares of
Company Common Stock are owned of record and beneficially by the Stockholders.
Except for the Option, there are no agreements, arrangements, options, warrants,
calls, rights or commitments of any character relating to the issuance, sale,
purchase or redemption of any shares of capital stock or other equity interest
of the Company, whether on conversion of other securities or otherwise. None of
the issued and outstanding shares of Company Common Stock has been issued in
violation of, or is subject to, any preemptive or subscription rights. The
Company is not a party to any stockholder agreement, voting trust agreement or
any other similar contract, agreement, arrangement, commitment, plan or
understanding restricting or otherwise relating to the voting, dividend,
ownership or transfer rights of any shares of capital stock of the Company. All
of the outstanding shares of capital stock of the Company are validly issued,
fully paid and nonassessable.
(c) Each of the Stockholders severally represents and warrants as to
themselves that except for this Agreement such Stockholder is not a party to,
and does not otherwise have any
-12-
<PAGE>
knowledge of the current existence of, any stockholder agreement, voting trust
agreement or any other similar contract, agreement, arrangement, commitment,
plan or understanding restricting or otherwise relating to the voting, dividend,
ownership or transfer rights of any shares of capital stock of the Company,
except as set forth on Schedules 4.1 and 4.19.
(d) Each Stockholder severally represents and warrants as to themselves
that (i) such Stockholder is the record and beneficial owner of the shares of
Company Common Stock listed in Schedule 4.1 opposite such Stockholder's name,
(ii) all such shares are owned free from all Encumbrances and (iii), except for
the shares to be issued as a result of the consummation of the Transaction,
neither such Stockholder nor any of such Stockholder's Affiliates owns,
beneficially or of record, any shares of Buyer Common Stock.
(e) The Company is its own "ultimate parent entity" (as defined in
16 C.F.R. (S)801.1(a)(3) (1994)).
4.2 SUBSIDIARIES AND INVESTMENTS. The Company does not, directly
or indirectly, (a) own, of record or beneficially, any outstanding voting
securities or other equity interests in any corporation, partnership, joint
venture, limited liability company or entity or (b) control any corporation,
partnership, joint venture, limited liability company or other entity.
4.3 AUTHORITY.
(a) The Company has full power and authority to execute, deliver and
perform this Agreement and all of the Company Ancillary Agreements. The
execution, delivery and performance of this Agreement and the Company Ancillary
Agreements by the Company have been duly authorized and approved by the
Company's Board of Directors and stockholders, no other corporate proceedings on
the part of the Company are necessary to authorize this Agreement and the
transactions contemplated hereby and thereby. This Agreement has been duly
authorized, executed and delivered by the Company and is the legal, valid and
binding obligation of the Company enforceable in accordance with its terms, and
each of the Company Ancillary Agreements has been duly authorized by the Company
and upon execution and delivery by the Company will be a legal, valid and
binding obligation of the Company enforceable in accordance with its terms, in
each case except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(b) Each Stockholder severally represents and warrants as to such
Stockholder that:
-13-
<PAGE>
(i) such Stockholder has full power and authority to execute, deliver
and perform this Agreement and each Stockholder Ancillary Agreement to
which such Stockholder is a party;
(ii) the execution, delivery and performance of this Agreement and each
Stockholder Ancillary Agreement to which such Stockholder is a party has
been duly authorized by all necessary action;
(iii) this Agreement has been duly executed and delivered by such
Stockholder and is the legal, valid and binding obligation of such
Stockholder enforceable in accordance with its terms; and
(iv) each of the Stockholder Ancillary Agreements to which such
Stockholder is a party will, upon execution and delivery by such
Stockholder, be a legal, valid and binding obligation of such Stockholder
enforceable in accordance with its terms.
(c) Except as set forth in Schedule 4.3(c), neither the execution
and delivery of this Agreement or any of the Company Ancillary Agreements or the
consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance
upon, any of the Company's assets under, (A) the Articles of Incorporation
or By-laws of the Company, (B) any Company Agreement, (C) any material
note, instrument, agreement, mortgage, lease, license, franchise, permit or
other authorization, right, restriction or obligation to which the Company
is a party or any of its assets or business is subject or by which the
Company is bound, (D) any Court Order to which the Company is a party or
any of its assets or business is subject or by which the Company is bound,
or (E) any Requirements of Laws affecting the Company or its assets or
business; or
(ii) require the approval, consent, authorization or act of, or the
making by the Company of any declaration, filing or registration with, any
Person.
(d) Each Stockholder severally represents and warrants as to
themselves that except as set forth in Schedule 4.3(d), neither the execution
and delivery of this Agreement or any of the Stockholder Ancillary Agreements to
which such Stockholder is a party or the consummation of any of the transactions
contemplated
-14-
<PAGE>
hereby or thereby nor compliance with or fulfillment of the terms, conditions
and provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance
upon any of such Stockholders's assets under, (A) any material note,
instrument, agreement, mortgage, lease, license, franchise, permit or other
authorization, right, restriction or obligation to which such Stockholder
is a party or any of such Stockholder's assets or business is subject or by
which such Stockholder is bound, (B) any Court Order to which such
Stockholder is a party or any of such Stockholder's assets or business is
subject or by which such Stockholder is bound, or (C) any Requirements of
Laws affecting such Stockholder or such Stockholder's assets or business;
or
(ii) require the approval, consent, authorization or act of, or the
making by such Stockholder of any declaration, filing or registration with,
any Person.
4.4 FINANCIAL STATEMENTS. Schedule 4.4 contains (a) the balance
sheet of the Company as of December 31, 1994 and December 31, 1995 and in each
case the related statements of income (the "Statements of Income"),
stockholders' equity and cash flows for each of the years then ended, together
with the appropriate notes to such financial statements, accompanied by the
reports thereon of BDO Seidman, independent public accountants (the "Audited
Financial Statements"), and (b) the unaudited balance sheet of the Company as of
May 31, 1996 (the "Balance Sheet") and the related unaudited statement of income
for the five months then ended and the unaudited balance sheet of the Company as
of June 30, 1996 and the related unaudited statement of income for the six
months then ended (collectively, the "Unaudited Financial Statements"). The
balance sheet of the Company as of June 30, 1996 and the related unaudited
statement of income for the six months then ended have been reviewed by BDO
Seidman. Except as disclosed in the notes thereto, the Audited Financial
Statements and the Unaudited Financial Statements have been prepared in
conformity with generally accepted accounting principles consistently applied
and fairly present in all material respects the financial position of the
Company (and in the case of the statements as of and for the year ended December
31, 1994, and such other entities) at the dates of such balance sheets and the
results of its operations and cash flows for the respective periods covered
thereby indicated, except that the Unaudited Financial Statements are subject to
normal year-end audit adjustments. Except as set forth on Schedule 4.4 or in
the Unaudited Financial Statements, the Unaudited Financial Statements include
all adjustments, which consist of normal recurring accruals, necessary for such
fair presentation, other than normal year-end audit adjustments. All costs and
expenses
-15-
<PAGE>
incurred in generating the revenues reflected in the Statements of Income during
the respective periods covered thereby which are required by generally accepted
accounting principles to be reflected in the Statements of Income are so
reflected.
4.5 OPERATIONS IN RECENT PERIODS.
----------------------------
(a) Except as set forth in Schedule 4.5(a):
---------------
(i) since December 31, 1995 there has been no material adverse change
in the, business, results of operations or prospects of the Company, and no
fact or condition exists or is contemplated or threatened which might
reasonably be expected to cause such a change in the future;
(ii) since May 31, 1996, there has been no material adverse change in
the assets or financial condition of the Company, and no fact or condition
exists or is contemplated or threatened which might reasonably be expected
to cause such change in the future; and
(iii) since December 31, 1995 there has been no damage, destruction,
loss or claim, whether or not covered by insurance, or condemnation or other
taking adversely affecting in any material respect any of the Company's assets
or its business.
(b) Except as set forth in Schedule 4.5(b), since December 31, 1995,
the Company has conducted its business only in the ordinary course and in
conformity with past practice. Without limiting the generality of the foregoing,
since May 31, 1996 (in the case of matters referred to in clauses (i), (ii),
(iii), (iv), (vi), (ix), or (x) below) or December 31, 1995 (in the case of
matters referred to in clause (v), (vii), (viii) or (xi) through (xiv) below)
except as set forth in such Schedule, the Company has not:
(i) paid any obligation or liability (absolute or contingent) other
than current liabilities reflected on the Balance Sheet and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice;
(ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions to its stockholders or purchased or redeemed, or
agreed to purchase or redeem, any of its capital stock or other equity
interest, and the Company has no declared but unpaid dividends;
(iii) made or permitted any material amendment or termination of any
Company Agreement;
(iv) undertaken or committed to undertake capital expenditures;
-16-
<PAGE>
(v) made any charitable donations;
(vi) sold, leased (as lessor), transferred or otherwise disposed of
(including any transfers from the Company to any of the Stockholders or any
of their respective Affiliates), or mortgaged or pledged, or imposed or
suffered to be imposed any Encumbrance on, any of the assets reflected on
the Balance Sheet or any assets acquired by the Company after the Balance
Sheet Date;
(vii) canceled any debts owed to or claims held by the Company
(including the settlement of any claims or litigation);
(viii) created, incurred or assumed, or agreed to create, incur or
assume, any indebtedness for borrowed money or entered into, as lessee, any
capitalized lease obligations (as defined in Statement of Financial
Accounting Standards No. 13);
(ix) accelerated or delayed collection of notes or accounts receivable
in advance of or beyond their regular due dates or the dates when the same
would have been collected in the ordinary course of its business consistent
with past practice;
(x) delayed or accelerated payment of any account payable or other
liability beyond or in advance of its due date or the date when such
liability would have been paid in the ordinary course of its business
consistent with past practice;
(xi) instituted any increase in any compensation payable to any
employee of the Company or in any profit-sharing, bonus, incentive,
deferred compensation, insurance, pension, retirement, medical, hospital,
disability, welfare or other benefits made available to employees of the
Company;
(xii) issued, delivered or agreed (conditionally or unconditionally)
to issue or deliver any of its bonds, notes or other debt securities, or
borrowed or agreed to borrow any funds;
(xiii) made any change in the accounting principles and practices used
by the Company from those applied in the preparation of the Audited
Financial Statements and the related statements of income, stockholders'
equity and cash flow for the twelve months ended on the Balance Sheet Date;
or
(xiv) entered into or become committed to enter into any other
material transaction except in the ordinary course of business consistent
with past practice.
-17-
<PAGE>
4.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 4.6, the
Company is not subject to any liability (including, without limitation,
unasserted claims, whether known or unknown), whether absolute, contingent,
accrued or otherwise, which is not shown or which is in excess of amounts being
shown or reserved for in the Balance Sheet, other than liabilities of the same
nature as those being set forth in the Balance Sheet and the notes thereto and
reasonably incurred in the ordinary course of its business consistent with past
practice after the Balance Sheet Date.
4.7 TAXES.
-----
Except as set forth on Schedule 4.7, (i) the Company and each Company Group
has filed all Tax Returns required to be filed; (ii) all such Tax Returns are
complete and accurate and disclose all Taxes required to be paid by the Company
and each Company Group for the periods covered thereby and all Taxes shown to be
due on such Tax Returns have been (or will be) timely paid; (iii) all Taxes
(whether or not shown on any Tax Return) owed by the Company or any Company
Group and required to be paid on or before the Closing Date have been timely
paid or, in the case of Taxes which the Company is presently contesting in good
faith, the Company has established an adequate reserve for such Taxes on the
Audited Financial Statements and the Unaudited Financial Statements; (iv)
neither the Company nor any member of any Company Group has waived or been
requested to waive any statute of limitations in respect of Taxes; (v) the Tax
Returns referred to in clause (i) have been examined by the Internal Revenue
Service or the appropriate state, local or foreign taxing authority or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (vi) there is no action, suit, investigation,
audit, claim or assessment pending or proposed or threatened with respect to
Taxes of the Company or any Company Group and, to the best of each Stockholder's
knowledge, no basis exists therefor; (vii) all deficiencies asserted or
assessments made as a result of any examination of the Tax Returns referred to
in clause (i) have been paid in full; (viii) all Tax Sharing Arrangements and
Tax indemnity arrangements will terminate prior to the Closing Date and the
Company will not have any liability thereunder on or after the Closing Date;
(ix) there are no liens for Taxes upon the assets of the Company except liens
relating to current Taxes not yet due; (x) all Taxes which the Company is
required by law to withhold or to collect for payment have been duly withheld
and collected, and have been paid or accrued, reserved against and entered on
the books of the Company; and (xi) the Company has never been a member of an
"affiliated group" (as defined in Section 1504(a) of the Code without regard to
the limitations contained in Section 1504(b) of the Code) and has never filed
Tax Returns on a combined, consolidated or unitary basis with any entity; and
(xii) the Company has never made an election under Section 1362 of the Code to
be treated as an "S corporation".
-18-
<PAGE>
(b) No transaction contemplated by this Agreement is subject to withholding
under Section 1445 of the Code and no stock transfer Taxes, sales Taxes, use
Taxes, real estate transfer Taxes, or other similar Taxes will be imposed on the
transactions contemplated by this Agreement.
(c) As a result of the transactions contemplated by this Agreement, none of
the Company or Buyer will be obligated to make a payment to an individual that
would be a "parachute payment" to a "disqualified individual" as those terms are
defined in Section 280G of the Code, without regard to whether such payment is
reasonable compensation for personal services performed or to be performed in
the future.
(d) The contribution of certain assets and liabilities to SDC by the
Company and the distribution of the stock of SDC by the Company to the
Stockholders pursuant to the resolutions of the Board of Directors of the
Company dated October 17, 1995 and the distribution of the stock of Georgia
Dental Plan, Inc. by the Company to the Stockholders pursuant to the resolutions
of the Board of Directors of the Company dated April 18, 1995 qualify as tax-
free transactions under Section 355 and Section 368(a)(1)(D) effective as of
December 31, 1995 and May 31, 1995, respectively.
4.8 AVAILABILITY OF ASSETS. Except as set forth in Schedule 4.8, the
assets owned or leased by the Company constitute all the assets used in its
business (including, but not limited to, all books, records, computers and
computer programs and data processing systems) and are in good condition
(subject to normal wear and tear and immaterial impairments of value and damage)
and serviceable condition and are generally suitable for the uses for which
intended. Schedule 4.8 also sets forth a description of all material services
provided by each of the Stockholders or any of their respective Affiliates to
the Company utilizing either (a) assets not owned by the Company as of the
Closing Date or (b) employees not listed in Schedule 4.18(i) pursuant to clause
(i) of Section 4.18(i), and the manner in which the costs of providing such
services have been charged to the Company.
4.6 GOVERNMENTAL PERMITS.
--------------------
(a) The Company owns, holds or possesses all licenses, franchises, permits,
privileges, immunities, approvals and other authorizations from Governmental
Bodies which are necessary to entitle it to own or lease, operate and use its
assets and to carry on and conduct its business substantially as currently
conducted (herein collectively called "Governmental Permits"). Schedule 4.9(a)
sets forth a list and brief description of each Governmental Permit. Complete
and correct copies of all of the Governmental Permits have heretofore been
delivered to Buyer.
(b) Except as set forth in Schedule 4.9(b), (i) the Company has fulfilled
and performed its obligations under each of
-19-
<PAGE>
the Governmental Permits, and no event has occurred or condition or state of
facts exists which constitutes or, after notice or lapse of time or both, would
constitute a breach or default under any such Governmental Permit or which
permits or, after notice or lapse of time or both, would permit revocation or
termination of any such Governmental Permit, or which might adversely affect in
any material respect the rights of the Company under any such Governmental
Permit; (ii) no notice of cancellation, of default or of any material dispute
concerning any Governmental Permit, or of any event, condition or state of facts
described in the preceding clause, has been received by, or is known to, the
Company or any of the Stockholders; and (iii) each of the Governmental Permits
is valid, subsisting and in full force and effect and will continue in full
force and effect after the Closing Date, in each case without (x) the occurrence
of any breach, default or forfeiture of rights thereunder, or (y) the consent,
approval, or act of, or the making of any filing with, any Governmental Body.
4.10 REAL PROPERTY. Schedule 4.10 contains a brief description of each
parcel of real property previously owned by the Company (the "Owned Real
Property") (showing the record title holder, legal description, permanent index
number, location, improvements, the uses being made thereof and any indebtedness
secured by a mortgage or other Encumbrance thereon). The Company does not own
any real property and does not have any option to acquire real property.
4.11 REAL PROPERTY LEASES. The Company does not lease any real property.
Schedule 4.11 sets forth a list and brief description of each lease or similar
agreement (showing the parties thereto, any amendments or modifications thereof,
annual rental, expiration date, renewal and purchase option if any, the
improvements thereon, the uses being made thereof, and the location and the
legal description of the real property covered by such lease or other agreement)
under which (a) the Company was the lessee of, or held or operated, any real
property owned by any third Person (the "Leased Real Property") or (b) the
Company was lessor of any of the Owned Real Property, in each case at any time
during 1995 or 1996.
4.12 PERSONAL PROPERTY. Schedule 4.12 contains a detailed list of all
machinery, equipment, vehicles, furniture or other personal property owned by
the Company.
4.13 PERSONAL PROPERTY LEASES. Schedule 4.13 contains a brief description
of each lease or other agreement or right, whether written or oral (including in
each case the annual rental, the expiration date thereof and a brief description
of the property covered), under which the Company is lessee of, or holds or
operates, any machinery, equipment, vehicle or other tangible personal property
owned by a third Person.
-20-
<PAGE>
4.14 INTELLECTUAL PROPERTY SOFTWARE.
(a) The Company does not own, license or use any intellectual property in
the conduct of the Company's business ("Intellectual Property"). Intellectual
Property includes:
(i) United States and foreign patents, patent applications,
continuations, continuations-in-part, divisions, reissues, patent
disclosures, inventions (whether or not patentable) or improvements
thereto;
(ii) United States, state and foreign trademarks, service marks,
logos, trade dress and trade names, whether registered or unregistered, and
pending applications to register the foregoing;
(iii) United States and foreign copyrights, whether registered or
unregistered and pending applications to register the same; and
(iv) confidential ideas, trade secrets, know-how, concepts, methods,
processes, formulae, reports, data, customer lists, mailing lists, business
plans, or other proprietary information.
(b) The Company does not own, license or use in the conduct of its
business, any computer software programs or software systems, except for
computer software programs or software systems that are available in consumer
retail stores and are subject to license agreements that become effective when
the purchaser breaks the software package.
4.15 ACCOUNTS RECEIVABLE. All accounts receivable of the Company have
arisen from bona fide transactions by the Company in the ordinary course of its
business. All accounts receivable reflected in the Balance Sheet are good and
collectible in the ordinary course of business at the aggregate recorded amounts
thereof, and all accounts receivable to be reflected on the books and records of
the Company as of the Closing Date, will be good and collectible in the ordinary
course of business at the aggregate recorded amounts thereof.
4.16 TITLE TO PROPERTY. The Company has good title to all of its assets
being reflected on the Balance Sheet as being owned by it and all of the assets
thereafter acquired by it (except to the extent that such assets have been
disposed of after the Balance Sheet Date in the ordinary course of business
consistent with past practice), free and clear of all Encumbrances, except for
Permitted Encumbrances and except as set forth in Schedule 4.16.
4.17 EMPLOYEE RELATIONS. The Company has complied in all material respects
with all applicable laws, rules and regulations which relate to wages, hours,
discrimination in
-21-
<PAGE>
employment and collective bargaining and to the operation of its business and is
not liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing. The Company and each of the Stockholders
believe that the Company's relations with its employees are satisfactory. The
Company is not a party to any collective bargaining agreement and the Company is
not a party to, and it is not affected by or threatened with, any dispute or
controversy with a union or with respect to unionization or collective
bargaining involving its employees.
4.18 EMPLOYEE BENEFIT PLANS.
(a) Set forth in Schedule 4.18(a) is a true and complete list of each
"employee pension benefit plan" (as such term is defined in Section 3(2) of
ERISA) maintained by the Company or an ERISA Affiliate, or with respect to which
the Company or an ERISA Affiliate is or will be required to make any payment
(the "Pension Plans"). Set forth in Schedule 4.18(a) is a true and complete list
of each "employee welfare benefit plan" (as such term is defined in Section 3(1)
of ERISA) maintained by the Company, or with respect to which the Company is or
will be required to make any payment, or which provides or will provide benefits
to present or prior employees of the Company due to such employment (the
"Welfare Plans") (the Pension Plans and Welfare Plans being the "ERISA Benefit
Plans"). In addition, set forth in Schedule 4.18(a) is a true and complete list
of each other "employee pension benefit plan" (as such term is defined in
Section 3(2) of ERISA) that is or has ever been subject to Section 302 of ERISA
and (i) maintained by the Company or an ERISA Affiliate at any time during the
six-year period prior to the Closing Date, or (ii) with respect to which the
Company or an ERISA Affiliate was required to make any payment at any time
during such period (the "Prior Pension Plans").
(b) Other than those listed in Schedule 4.18(a), set forth in Schedule
4.18(b) is a true and complete list of each of the following to which the
Company is a party or with respect to which it is or will be required to make
any payment (the "Non-ERISA Commitments"):
(i) each retirement, savings, profit sharing, deferred compensation,
severance, stock ownership, stock purchase, stock option, performance, bonus,
incentive, vacation or holiday pay, hospitalization or other medical,
disability, life or other insurance, or other welfare, benefit or fringe benefit
plan, policy, trust, understanding or arrangement of any kind, whether written
or oral; and
(ii) each employee collective bargaining agreement and each agreement,
understanding or arrangement of any kind, whether written or oral, with or for
the benefit of any present or prior officer, director, employee, agent or
consultant (including, without limitation, each employment, compensation,
deferred compensation, severance or consulting
-22-
<PAGE>
agreement or arrangement, confidentiality agreement, covenant not to
compete and any agreement or arrangement associated with a change in
ownership or control of the Company, but excluding employment agreements
terminable by the Company without premium or penalty on notice of 30 days
or less under which the only monetary obligation of the Company is to make
current wage or salary payments and provide current fringe benefits).
The Company has delivered to Buyer correct and complete copies of (i) all
written Non-ERISA Commitments and (ii) all insurance and annuity policies and
contracts and other documents relevant to any Non-ERISA Commitment. Schedule
4.18(b) contains a complete and accurate description of all oral Non-ERISA
Commitments. Except as disclosed in Schedule 4.18(a) or Schedule 4.18(b), none
of the ERISA Benefit Plans or the Non-ERISA Commitments is subject to the law of
any jurisdiction outside of the United States of America.
(c) The Company has delivered to Buyer with respect to each ERISA
Benefit Plan and with respect to each Prior Pension Plan correct and complete
copies, where applicable, of (i) all plan documents and amendments thereto,
trust agreements and amendments thereto and insurance and annuity contracts and
policies, (ii) the current summary plan description, (iii) the Annual Reports
(Form 5500 series) and accompanying schedules, as filed, for the most recently
completed three plan years for which such reports have been filed, (iv) the
financial statements for the most recently completed three plan years for which
such statements have been prepared, (v) the actuarial reports for the most
recently begun three plan years for which such reports exist, (vi) the most
recent determination letter issued by the IRS and the application submitted with
respect to such letter, (vii) PBGC Form 1, if any, for the most recently begun
plan year and (H) all correspondence with the IRS, Department of Labor and
Pension Benefit Guaranty Corporation concerning any controversy. Each report
described in clause (v) of the preceding sentence accurately describes the
funded status of the plan to which it relates and subsequent to the date of such
report there has been no adverse change in the funding status or financial
condition of such plan. Neither the Company nor any ERISA Affiliate has
contributed to or been required to contribute to any Pension Plan that is a
"multi-employer plan" (within the meaning of Section 3(37) of ERISA).
(d) Neither the Company nor any ERISA Affiliate has maintained,
contributed to or been required to contribute to any Pension Plan which is
subject to Section 302 of ERISA. Each Pension Plan which is intended to qualify
under Section 401(a) of the Code has been determined to be so qualified by the
IRS, and no circumstance has occurred or exists which might cause such plan to
cease being so qualified.
(e) There is no pending or, to the best knowledge of the Company,
threatened claim in respect of any of the ERISA
-23-
<PAGE>
Benefit Plans other than claims for benefits in the ordinary course of business.
Each of the ERISA Benefit Plans (i) has been administered in accordance with its
terms and (ii) complies in form, and has been administered in substantial
compliance with the requirements of ERISA and, where applicable, the Code. The
Company has complied with the health care continuation requirements of Part 6 of
Title I of ERISA and no action taken by an ERISA Affiliate is reasonably likely
to result in liability to the Company under Part 6 of Title I of ERISA or
Section 498013 of the Code. The Company has no obligation under any ERISA
Benefit Plans or otherwise to provide health or other welfare benefits to any
prior employees or any other person, except as required by Part 6 of Title I of
ERISA. The consummation of the transaction contemplated by this Agreement will
not result in an increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any compensation or benefits
payable to or in respect of any participant. The Company is in compliance with
the requirements of the Workers Adjustment and Retraining Notification Act
("WARN") and has no liabilities pursuant to WARN.
(f) Neither the Company nor, to the best knowledge of the Company, any
other "disqualified person" (within the meaning of Section 4975 of the Code) or
"party in interest" (within the meaning of Section 3(14) of ERISA) has taken any
action with respect to any ERISA Benefit Plan which could subject any such plan
(or its related trust) or the Company or any officer, director or employee of
any of the foregoing to the penalty or tax under Section 502(i) or Section
502(l) of ERISA or Section 4975 of the Code.
(g) The Company has no potential liability, whether direct or indirect,
contingent or otherwise, under Section 4063, 4064, 4069, 4204 or 4212(c) of
ERISA.
(h) Schedule 4.18(h) contains: (i) a list of all employees of the Company;
(ii) the then current annual compensation of, and a description of the fringe
benefits (other than those generally available to employees of the Company)
provided by the Company to any such employees; (iii) a list of all present or
former employees of the Company who have terminated or given notice of their
intention to terminate their relationship with the Company since December 31,
1995; (iv) a list of any increase, effective after December 31, 1995 in the rate
of compensation of any employees if such increase exceeds 6% of the previous
annual salary of such employee or commission salesperson; and (v) a list of all
substantial changes in job assignments of, or arrangements with, or promotions
or appointments of, any employees.
(i) For purposes of this Agreement, "ERISA Affiliate" means (i) any
corporation which at any time on or before the Closing Date is or was a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as the Company; (ii) any partnership, trade or business
(whether or
-24-
<PAGE>
not incorporated) which at any time on or before the Closing Date is or was
under common control (within meaning of Section 414(c) of the Code) with the
Company; and (iii) any entity which at any time on or before the Closing Date is
or was a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as either the Company, any corporation described in
clause (i) of this paragraph or any partnership, trade or business described in
clause (ii) of this paragraph.
(j) Except as set forth in Schedule 4.18(j), (i) to the best knowledge of
the Company and each of the Stockholders, the Company is not involved in any
transaction or other situation with any employee, officer, director or Affiliate
of the Company which may be generally characterized as a "conflict of interest",
including, but not limited to, direct or indirect interests in the business of
competitors, suppliers or customers of the Company, and (ii) there are no
situations with respect to the Company which involved or involves (A) the use of
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to political activity, (B) the making of any direct or
indirect unlawful payments to government officials or others from corporate
funds or the establishment or maintenance of any unlawful or unrecorded funds,
(C) the violation of any of the provisions of The Foreign Corrupt Practices Act
of 1977, or any rules or regulations promulgated thereunder, (D) the receipt of
any illegal discounts or rebates or any other violation of the antitrust laws or
(E) any investigation by the Securities and Exchange Commission or any other
federal, foreign, state or local government agency or authority.
Except as set forth in Schedule 4.18(j) hereto, since May 31, 1996, the
Company has not, directly or indirectly, purchased, leased from others or
otherwise acquired any material property or obtained any material services from,
or sold, leased to others or otherwise disposed or any material property or
furnished any material services to (except with respect to remuneration for
services rendered as a director, officer or employee of the Company), in the
ordinary course of business or otherwise, (i) any Stockholder, (ii) any
Affiliate of the Company, (iii) any person who is an officer or director of the
Company or (iv) any Associate of any person referred to in clause (i), (ii) or
(iii) above. Except as set forth in Schedule 4.18(j) hereto, the Company does
not owe any amount in excess of $10,000 to, or have any contract with or
commitment to, any Stockholder, director, officer or employee of the Company
(other than for compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business) and none
of such persons owes any amount in excess of $10,000 to the Company.
Neither the Company nor any officer, employee or agent or other person
acting on its behalf has, directly or indirectly, since December 31, 1993, given
or agreed to give any gift or similar benefit (other than with respect to bona
fide payments for
-25-
<PAGE>
which adequate consideration has been given) to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of the Company (or assist the Company in connection with any
actual or proposed transaction) (i) which might subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) which, if not continued in the future, would have an adverse
effect on the assets, business, operations or prospects of the Company or which
would subject the Company to suit or penalty in any private or governmental
litigation or proceeding, (iii) for any of the purposes described in Section
162(c) of the Code, or (iv) for establishment or maintenance of any concealed
fund or concealed bank account.
4.19 CONTRACTS. Except as set forth in Schedule 4.19 or any other Schedule
hereto, the Company is not a party to or bound by:
(a) any contract for the purchase, sale or lease of real property;
(b) any contract with providers of health care services or with Persons
that employ or contract with providers of health care services (the "Provider
Contracts");
(c) any contract for the purchase, licensing or development of software to
be used by the Company;
(d) any consignment, distributor, dealer, sales agency, advertising
representative or advertising or public relations contract;
(e) any guarantee of the obligations or liabilities of customers,
suppliers, providers, officers, directors, employees, Affiliates of the Company
or other Persons;
(f) any agreement which provides for, or relates to, the incurrence by the
Company of debt for borrowed money or the extension of credit by the Company to
any other Person;
(g) any agreement or understanding with a third Person that restricts the
Company from carrying on its business anywhere in the world;
(h) except for this Agreement, any contract which provides for, or relates
to, any non-competition or confidentiality arrangement with any Person,
including any current or former officer or employee of the Company;
(i) any contract or group of related contracts for capital expenditures;
-26-
<PAGE>
(j) any partnership, joint venture or other similar arrangement or
agreement involving a sharing of profits or losses;
(k) any contract which involves payments or receipts by the Company of
more than $5,000;
(l) any contract with any Stockholder or any Affiliate of the Company or
any Stockholder;
(m) any contract not made in the ordinary course; or
(n) any contract for any purpose (whether or not made in the ordinary
course of the business or otherwise not required to be listed or described in
Schedule 4.18) which is material to the Company or its business.
4.20 STATUS OF CONTRACTS. Except as set forth in Schedule 4.20 or in any
other Schedule hereto, each of the leases, contracts and other agreements,
including, without limitation, the Provider Contracts, listed in Schedules 4.11,
4.13, 4.18(a), 4.18(b) and 4.19 (collectively, the "Company Agreements")
constitutes a valid and binding obligation of the parties thereto and is in full
force and effect and (except as set forth in Schedule 4.3 and except for those
Company Agreements which by their terms will expire prior to the Closing Date or
are otherwise terminated prior to the Closing Date in accordance with the
provisions hereof) will continue in full force and effect after the Closing
Date, in each case without breaching the terms thereof or resulting in the
forfeiture or impairment of any rights thereunder and without the consent,
approval or act of, or the making of any filing with, any other party. The
Company has fulfilled and performed in all material respects its obligations
under each of the Company Agreements, and the Company is not in, or alleged to
be in, breach or default under, nor is there or is there alleged to be any basis
for termination of, any of the Company Agreements and, to the best knowledge of
the Company and each of the Stockholders, no other party to any of the Company
Agreements has breached or defaulted thereunder, and no event has occurred and
no condition or state of facts exists which, with the passage of time or the
giving of notice or both, would constitute such a default or breach by the
Company or, to the best knowledge of the Company and each of the Stockholders,
by any such other party. The Company is not currently renegotiating any of the
Company Agreements or paying liquidated damages in lieu of performance
thereunder. The Company has received no notice of termination of, and neither
the Company nor the Stockholders is aware of any intent of any of the health
care providers bound, directly or indirectly, by any of the Provider Contracts
to terminate or fail to renew at payment rates currently in effect, any Provider
Contract. None of the Company Agreements contains terms unduly burdensome to the
Company or is harmful to its business. Complete and correct copies of each of
the Company Agreements have heretofore been delivered to Buyer.
-27-
<PAGE>
4.21 NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as set forth in
Schedule 4.21:
(a) the Company's assets and their uses comply with all applicable
Requirements of Laws and Court Orders;
(b) the Company has complied with all Requirements of Laws and Court
Orders which are applicable to the Company's assets or its business;
(c) there are no lawsuits, claims, suits, proceedings or investigations
pending or, to the best knowledge of the Company or each of the Stockholders,
threatened against or affecting the Company or its assets or business nor, to
the best knowledge of the Company or each of the Stockholders, is there any
basis for any of the same, and there are no lawsuits, suits or proceedings
pending in which the Company is the plaintiff or claimant;
(d) there is no action, suit or proceeding pending or, to the best
knowledge of the Company or each of the Stockholders, threatened which questions
the legality or propriety of the transactions contemplated by this Agreement;
and
(e) to the best knowledge of the Company and each of the Stockholders, no
legislative or regulatory proposal has been adopted or is pending which could
adversely affect the Company's business in any material respect.
4.22 ENVIRONMENTAL MATTERS.
---------------------
(a) The Company's past and present operatons have complied and are in
compliance with all applicable Environmental Laws.
(b) No environmental, health or safety Governmental Permits are necessary
for the operation of the Company's business.
(c) The Company is not subject to any judicial or administrative
proceeding, order, judgment, decree or settlement alleging or addressing a
violation of or liability under any Environmental Law.
(d) None of the Company, nor any property owned, leased or used by the
Company or its past or present operations, is subject to any on-going
investigation by, order from or agreement with any Person (including without
limitation any prior owner or operator of any such property) respecting (i) any
Environmental Law, (ii) any Remedial Action or (iii) any claim of Losses and
Expenses arising from the Release or threatened Release of a Contaminant into
the environment;
-28-
<PAGE>
(e) The Company has not:
(i) reported a Release of a hazardous substance pursuant to Section
103(a) of CERCLA, or any state equivalent;
(ii) filed a notice pursuant to Section 103(c) of CERCLA;
(iii) filed notice pursuant to Section 3010 of RCRA, indicating the
generation of any hazardous waste, as that term is defined under 40 CFR
Part 261 or any state equivalent; or
(iv) filed any notice under any applicable Environmental Law reporting
a substantial violation of any applicable Environmental Law.
(f) There is not now, nor to the best knowledge of the Company or
each of the Stockholders has there ever been, on or in any property owned,
leased or used by the Company:
(i) any treatment, recycling, storage or disposal of any hazardous
waste, as that term is defined under 40 CFR Part 261 or any state
equivalent that requires or required a Governmental Permit pursuant to
Section 3005 of RCRA; or
(ii) any underground storage tank or surface impoundment or landfill
or waste pile.
(g) There is not now on or in any property used by the Company any
polychlorinated biphenyls (PCB) used in pigments, hydraulic oils, electrical
transformers or other equipment.
(h) The Company has not received any notice or claim to the effect
that it is or may be liable to any Person as a result of the Release or
threatened Release of a Contaminant into the environment on any property owned,
leased or used by the Company.
(i) No property owned, leased or used by the Company has been listed
or, to the best knowledge of the Company or Stockholder, proposed for listing on
the National Priorities List pursuant to CERCLA, on the Comprehensive
Environmental Response, Compensation and Liability Information System List or
any state list of sites requiring Remedial Action.
(j) Any asbestos-containing material which is on or part of any
property used by the Company is in good repair according to the current
standards and practices governing such material, and its presence or condition
does not violate any currently applicable Environmental Law.
4.23 INSURANCE. The Company maintains policies of fire and casualty,
liability (general and other liability), workers' compensation and other forms
of insurance and bonds in such amounts
-29-
<PAGE>
and against such risks and losses as are insured against by companies engaged in
the same or a similar business. Schedule 4.23 sets forth a list and brief
description (including nature of coverage, limits, deductibles, premiums and the
loss experience for the most recent five years with respect to each type of
coverage) of all policies of insurance maintained, owned or held by the Company
during the period from January 1, 1991 up to and including the date hereof. The
Company shall keep or cause such insurance or comparable insurance in full force
and effect through the Closing Date. The Company has complied with each of such
insurance policies and has not failed to give any notice or present any claim
thereunder in a due and timely manner. Except as disclosed in Schedule 4.23, the
full policy limits (subject to deductibles provided in such policies) are
available and unimpaired under each such policy and to the best knowledge of the
Company and each of the Stockholders, no insurer under any of such policies has
a basis to void such policy on grounds of non-disclosure on the part of the
policyholder or the insured thereunder. Each of such policies is in full force
and effect and will not in any way be affected by or terminate or lapse by
reason of the transactions contemplated by this Agreement. The Company has
delivered to Buyer correct and complete copies of the most recent inspection
reports, if any, received from insurance underwriters as to the condition of the
Company's assets.
4.24 NO FINDER. Neither the Company or any of the Stockholders nor
any Person acting on behalf of the Company or any of the Stockholders has paid
or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
4.25 BUDGETS. Schedule 4.25 sets forth as of the date hereof the
budgets of capital, payroll and other expenditures of the Company prepared in
the ordinary course of its business for the fiscal year ending December 31,
1996.
4.26 DISCLOSURE. None of the representations or warranties of the
Company contained herein, none of the information contained in the Schedules
referred to in this Article IV, and none of the other information or documents
furnished or to be furnished to Buyer or any of its representatives by the
Company, any of the Stockholders or their representatives pursuant to the terms
of this Agreement, is false or misleading in any material respect or omits to
state a fact herein or therein necessary to make the statements herein or
therein not misleading in any material respect. There is no fact which adversely
affects or in the future is likely to adversely affect the Company's assets or
its business in any material respect which has not been set forth or referred to
in this Agreement or the Schedules hereto.
4.27 REORGANIZATION. To the best knowledge of the Company and each
of the Stockholders, the Company has not taken any action or failed to take any
action which action or failure to take
-30-
<PAGE>
action would jeopardize the qualification of the Transaction as a reorganization
within the meaning of Section 368(a)(1)(b) of the Code.
4.28 BUYER COMMON STOCK.
(a) Each Stockholder severally represents and warrants that such
Stockholder has received (i) the Buyer SEC Documents, (ii) each quarterly report
on Form 10-Q of Buyer filed subsequent thereto containing unaudited quarterly
financial information, and (iii) such further information as such Stockholder
desires concerning Buyer and its assets, business, financial condition, results
of operations.
(b) Each Stockholder severally represents, warrants and agrees that
(i) the shares of Buyer Common Stock that are issuable to such Stockholder
pursuant to this Agreement are not being registered under the Securities Act in
reliance upon an exemption from registration thereunder applicable to the
issuance of such Buyer Common Stock in transactions that do not involve any
public offering, (ii) such shares Buyer Common Stock are being and will be
acquired by such Stockholder for such Stockholder's own account for investment,
and not with a view to the distribution or sale of such shares of Buyer Common
Stock, (iii) such Stockholder has such knowledge and experience in financial and
business matters that such Stockholder is capable of evaluating the merits and
risks of the proposed investment in shares of Buyer Common Stock, (iv) such
Stockholder understands that such Stockholder's ability to dispose of such Buyer
Common Stock in the public market for such stock or otherwise is limited by the
Securities Act, including Rule 144 promulgated thereunder, and, therefore, such
Stockholder may have to bear the risk of such Stockholder's investment in such
Buyer Common Stock for an indefinite period of time and (v) such Stockholder is
an accredited investor as defined in Rule 501 under the Securities Act.
(c) Each Stockholder hereby acknowledges that each certificate
representing shares of Buyer Common Stock that are issuable to such Stockholder
pursuant to this Agreement shall be stamped or otherwise imprinted with a legend
substantially to the following effect:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAVE THEY BEEN
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. NO SALE, TRANSFER OR
OTHER DISPOSITION OF SUCH SHARES WILL BE PERMITTED UNLESS THEY HAVE BEEN SO
REGISTERED AND QUALIFIED OR THE ISSUER THEREOF HAS BEEN FURNISHED WITH A
LEGAL OPINION FROM A LAW FIRM REASONABLY SATISFACTORY TO IT THAT SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
-31-
<PAGE>
(d) With the exception of transfers made pursuant to the registration of
shares of Buyer Common Stock pursuant to the Registration Rights Agreement,
prior to any proposed transfer of all or any part of the Buyer Common Stock of
any Stockholder acquired pursuant hereto, such Stockholder shall give written
notice to Buyer of such Stockholder's intention to effect such transfer. Each
such notice shall describe the manner of the proposed transfer and, if requested
by Buyer, shall be accompanied by an opinion of a nationally recognized law firm
satisfactory to Buyer to the effect that the proposed transfer may be effected
without registration under the Securities Act or qualification under any
applicable state securities law, whereupon such Stockholder shall be entitled,
except as provided otherwise herein, to transfer such securities in accordance
with the terms of such Stockholder's notice. Each certificate representing the
Buyer Common Stock so transferred shall bear the legend set forth above except
that such certificate shall not bear such legend if (i) such transfer is in
accordance with the provisions of Rule 144 promulgated under the Securities Act
(or any other rule permitting public sale without registration under the
Securities Act) or (ii) the opinion of counsel referred to above is to the
further effect that the transferee and any subsequent transferee (other than
Buyer or an Affiliate of Buyer) would be entitled to transfer such securities in
a public sale without registration under the Securities Act or qualification
under any applicable state securities law. In addition, new certificates may be
issued without such legend if such legend may be properly removed under the
terms of Rule 144(k) promulgated under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
As an inducement to the Company and the Stockholders to enter into this
Agreement and to consummate the transactions contemplated hereby, Buyer hereby
represents and warrants to the Company and each of the Stockholders and agree as
follows:
5.1 ORGANIZATION. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has corporate
power and authority to own or lease and to operate and use its properties and
assets and to carry on its business as now conducted. All of the shares of Buyer
Common Stock to be issued in the Transaction, when issued and delivered in
accordance with this Agreement will be, duly authorized, validly issued, fully
paid and nonassessable.
5.2 AUTHORITY.
(a) Buyer has corporate power and authority to execute, deliver and
perform this Agreement and all of the Buyer Ancillary Agreements. The execution,
delivery and performance of this Agreement and the Buyer Ancillary Agreements by
Buyer have been duly
-32-
<PAGE>
authorized and approved by Buyer's Board of Directors and no other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement, the
Buyer Ancillary Agreements and the transactions contemplated hereby and thereby.
This Agreement has been duly authorized, executed and delivered by Buyer and is
the legal, valid and binding obligation of Buyer enforceable in accordance with
its terms, and each of the Buyer Ancillary Agreements has been duly authorized
by Buyer and upon execution and delivery by Buyer will be a legal, valid and
binding obligation of Buyer enforceable in accordance with its terms, in each
case except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(b) Neither the execution and delivery of this Agreement or any of the
Buyer Ancillary Agreements or the consummation of any of the transactions
contemplated hereby or thereby nor compliance with or fulfillment of the terms,
conditions and provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance upon
any of Buyer's assets under, (A) the Certificate or Articles of Incorporation
or By-laws of Buyer, (B) any material note, instrument, agreement, mortgage,
lease, license, franchise, permit or other authorization, right, restriction
or obligation to which Buyer is a party or any of their respective material
assets or business is subject or by which Buyer is bound, (C) any material
Court Order to which Buyer is a party or by which either Buyer is bound or (D)
any material Requirements of Laws affecting Buyer, except for, in the case of
clauses (2) or (3) of this subparagraph (i), any such conflicts, breaches,
defaults, rights or Encumbrances that, individually or in the aggregate, would
not have a Material Adverse Effect on Buyer and its subsidiaries, taken as a
whole, materially impair the ability of Buyer to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby; or
(ii) require the approval, consent, authorization or act of, or the making
by Buyer of any declaration, filing or registration with, any third Person.
5.3 NO FINDER. Neither Buyer nor any Person acting on behalf of Buyer has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
-33-
<PAGE>
5.4 BUYER SEC DOCUMENTS. Buyer has previously delivered to the Company
complete and correct copies of (i) the Buyer's Annual Report on Form 10-K for
the year ended December 31, 1995; (ii) the Buyer's Annual Report to Stockholders
for the year ended December 31, 1995; (iii) the Buyer's Notice of Annual Meeting
and Proxy Statement dated April 29, 1996; (iv) the Buyer's Quarterly Report on
Form 10-Q for the three months ended March 31, 1996 and (v) the Buyer's
Prospectus dated November 16, 1995, which includes a description of the Buyer
Common Stock (the "Buyer SEC Documents"). The Buyer SEC Documents, as of their
respective dates, conformed in all material respects with the requirements of
the Exchange Act and the Securities Act, as applicable, and the rules and
regulations of the SEC thereunder, and did not contain an untrue statement of a
material fact required to be stated therein or omit to state a material fact
necessary to make the statements therein not misleading.
ARTICLE VI
ACTION PRIOR TO THE CLOSING DATE
--------------------------------
The respective parties hereto covenant and agree to take the following
actions between the date hereof and the Closing Date:
6.1 INVESTIGATION OF THE COMPANY. The Company and the Stockholders shall
afford to the officers, employees and authorized representatives of Buyer
including, without limitation, its independent public accountants, attorneys,
environmental consultants and financial advisors), reasonable access during
normal business hours to the offices, properties, employees and business and
financial records (including, without limitation, computer files, retrieval
programs and similar documentation) of or relating to the Company to the extent
Buyer shall deem necessary or desirable, and shall furnish to Buyer or its
authorized representatives such additional information concerning the
operations, properties and businesses of the Company as may be reasonably
requested in writing, to enable Buyer or its authorized representatives to
conduct an audit of the eligibility, premium data and cash collections of the
Company, to verify the accuracy of the representations and warranties contained
in this Agreement, to verify the accuracy of the financial statements referred
to in Section 4.4 and to determine whether the conditions set forth in Articles
VIII have been satisfied. Buyer agrees that such investigations shall be
conducted in such manner as not to interfere unreasonably with the operation of
the business of the Company. No investigation made by Buyer or its authorized
representatives hereunder shall affect the representations and warranties of the
Company and the Stockholders hereunder.
6.2 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
parties hereto shall refrain from taking any action which would render any
representation or warranty contained in Article IV or V of this Agreement
inaccurate as of the Closing
-34-
<PAGE>
Date. Each party shall promptly notify the other parties of any action, suit or
proceeding that shall be instituted or threatened against such party to
restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement. The Company shall promptly notify Buyer of any
lawsuit, claim, proceeding or investigation that may be instituted or threatened
against the Company which would have been listed in Schedule 4.21 if such
lawsuit, claim, proceeding or investigation had arisen prior to the date hereof.
6.3 CONSENTS OF THIRD PARTIES; GOVERNMENTAL APPROVALS.
(a) The Company will act diligently and reasonably to secure, before the
Closing Date, the consent, approval or waiver, in form and substance reasonably
satisfactory to Buyer, from any party to any Company Agreement required to
satisfy the conditions set forth in Section 8.5; provided that no party hereto
shall have any obligation to offer or pay any consideration in order to obtain
any such consents or approvals; and provided, further, that the Company shall
not make any agreement or understanding affecting the Company or its assets or
business as a condition for obtaining any such consents or waivers except with
the prior written consent of Buyer. During the period prior to the Closing Date,
each of the Stockholders and Buyer shall act diligently and reasonably to
cooperate with the Company to obtain the consents, approvals and waivers
contemplated by this Section 6.3(a).
(b) During the period prior to the Closing Date, the parties hereto shall
act diligently and reasonably, and shall cooperate with each other, to secure
any consents and approvals of any Governmental Body required to be obtained by
them in order to permit the consummation of the transactions contemplated by
this Agreement or to otherwise satisfy the conditions set forth in Section 8.4;
provided that the Company shall not make any agreement or understanding
affecting the Company or its assets or business as a condition for obtaining any
such consents or approvals except with the prior written consent of Buyer.
6.4 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE TRANSACTION.
(a) Except as expressly contemplated by this Agreement, the Company shall
carry on its business in, and not enter into any material transaction other than
in accordance with, the ordinary course consistent with past practice and, to
the extent consistent therewith, use its reasonable best efforts to preserve
intact its current business organization and preserve its relationships with
customers, suppliers and others having business dealings with it (except, in
each case, with the prior written consent of Buyer). In connection therewith, no
Stockholder shall (i) transfer or cause to be transferred any employee or agent
of the Company to any of the Company's Affiliates, (ii) offer employment to any
such employee or agent or (iii) otherwise attempt to persuade any such
-35-
<PAGE>
employee or agent to terminate his or her relationship with the Company. Without
limiting the generality of the foregoing, and except as expressly contemplated
by this Agreement, the Company shall not, without the prior written consent of
Buyer:
(i) (A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to the Stockholders in their capacity as
such, (B) split, combine or reclassify any of its capital stock or issue, sell
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (C) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any other
securities thereof;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock or other securities (including, without
limitation, any rights, warrants or options to acquire any shares of its
capital stock or other securities);
(iii) amend its Articles of Incorporation or By-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof;
(v) incur or assume any indebtedness for borrowed money, enter into (as
lessee) any capitalized lease obligation, guarantee any such indebtedness or
obligation, issue or sell any debt securities, guarantee any debt securities
of others or make any loans, advances or capital contributions to, or
investments in, any other Person;
(vi) make or incur any new capital expenditure;
(vii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction thereof in the ordinary course of
business consistent with past practice;
(viii) alter through merger, liquidation, reorganization, restructuring or
in any other fashion its corporate structure;
(ix) enter into or adopt any bonus, incentive, deferred compensation,
insurance, medical, hospital, disability or severance plan, agreement or
arrangement or enter into any employee benefit plan or employment, consulting
or management agreement, other than any such amendment to an employee
-36-
<PAGE>
benefit plan that is made to maintain the qualified status of such plan or its
continued compliance with applicable law;
(x) make any change in accounting practices or policies applied in the
preparation of the financial statements referred to in Section 4.4, except as
required by generally accepted accounting principles;
(xi) modify any of the agreements, understandings, obligations,
commitments, indebtedness or other obligations set forth in any of the
Schedules to this Agreement, enter into any agreement, understanding,
obligation or commitment, or incur any indebtedness or obligation, of the type
that would have been required to be listed on Schedule 4.19 if in existence on
the date hereof, or enter into any contract which requires any approval or
consent by any other Person to the transactions contemplated by this
Agreement;
(xii) pay or commit to pay any bonus to any officer or employee of the
Company or make any other material change in the compensation of its
employees, except for severance pay not to exceed $20,000 in the aggregate for
employees who are not continuing with the Company after the Closing;
(xiii) make any change in its business or operations;
(xiv) enter into any contract for the purchase or lease of real property;
(xv) sell, lease (as lessor), transfer or otherwise dispose of
(including any transfers from the Company to any Stockholder or any of its
Affiliates), or mortgage or pledge, or impose or suffer to be imposed any
Encumbrance on, any of the Company's assets;
(xvi) cancel any debts owed to or claims held by the Company (including
the settlement of any claims or litigation);
(xvii) accelerate or delay collection of any notes or accounts receivable
in advance of or beyond their regular due dates or the dates when the same
would have been collected in the ordinary course of its business consistent
with past practice;
(xviii) delay or accelerate payment of any account payable or other
liability beyond or in advance of its due date or the date when such liability
would have been paid in the ordinary course of its business consistent with
past practice; or
(xix) enter into any other transaction affecting the business of the
Company, other than in the ordinary course of
-37-
<PAGE>
business consistent with past practice or as expressly contemplated by this
Agreement.
6.5 NOTIFICATION OF CERTAIN MATTERS. The Company shall promptly
advise Buyer in writing of (a) any change or event having a Material Adverse
Effect on the Company, (b) any notice or other communication from any third
Person alleging that the consent of such third Person is or may be required in
connection with the transactions contemplated by this Agreement, and (c) any
material default under any Company Agreement or event which, with notice or
lapse of time or both, would become such a default on or prior to the Closing
Date and of which the Company or any of the Stockholders has knowledge.
6.6 MUTUAL COOPERATION; REASONABLE BEST EFFORTS. The parties hereto shall
cooperate with each other, and shall use their respective reasonable best
efforts to cause as promptly as possible the fulfillment of the conditions to
each other party's obligations hereunder, including without limitation Sections
8.3 and 9.2, and to obtain as promptly as possible all consents, authorizations,
orders or approvals from each and every third party, whether private or
governmental, required in connection with the transactions contemplated by this
Agreement; provided, however, that the foregoing shall not require Buyer or the
Company to make any divestiture or consent to any divestiture in order to
fulfill any condition or obtain any consent, authorization or approval.
6.7 NO SOLICITATION. The Company shall not, nor shall it authorize
or permit any of its Affiliates or any officer, director, employee, investment
banker, attorney or other adviser or representative of the Company or any of its
Affiliates to, (i) solicit, initiate, or encourage the submission of, any
Acquisition Proposal (as hereinafter defined), (ii) enter into any agreement
with respect to any Acquisition Proposal or (iii) except to the extent required
by law as advised by counsel in writing, participate in any discussions or
negotiations regarding, or furnish to any person any information for the purpose
of facilitating the making of, or take any other action to facilitate any
inquiries or the making of, any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal. Without limiting the foregoing,
it is understood that any violation, of which the Company or any of its
Affiliates had knowledge at the time of such violation, of the restrictions set
forth in the immediately preceding sentence by any officer, director, employee,
investment banker, attorney, employee, or other adviser or representative of the
Company or any of its Affiliates, whether or not such Person is purporting to
act on behalf of the Company or any of its Affiliates or otherwise, shall be
deemed to be a breach of this Section 6.7 by the Company and its Affiliates.
The Company promptly shall advise Buyer of any Acquisition Proposal and any
inquiries with respect to any Acquisition Proposal. For purposes of this
Agreement, "Acquisition Proposal" means any proposal for a merger or other
business combination involving the
-38-
<PAGE>
Company or any of its Affiliates or any proposal or offer to acquire in any
manner, directly or indirectly, an equity interest in the Company or any of its
Affiliates, any voting securities of the Company or any of its Affiliates or a
substantial portion of the assets of the Company.
6.8 SUBSEQUENT FINANCIAL STATEMENTS. Prior to the Closing Date, the
Company shall deliver to Buyer, not later than 15 days after the end of each
monthly period and in the form customarily prepared by the Company, the
unaudited internal financial statements of the Company, including an income
statement, for the monthly period then ended and for the period from the
beginning of the current fiscal year to the end of such monthly period.
6.9 WISCONSIN OCI FILING. The parties agree to cooperate, and the
Stockholders agree to cause SDI to cooperate, in the filing of such applications
and supporting information required to be filed with the Office of the
Commissioner of Insurance of the State of Wisconsin (the "Wisconsin OCI") in
order to obtain the necessary approval of the Wisconsin OCI of the Assumption
Reinsurance Agreement. Each party agrees to make available to the others such
information relative to its business and assets as may be required to file any
additional information requested by the Wisconsin OCI.
6.10 Adjustment Procedures for 1996 Annualized Management Fee Revenue.
(a) As soon as practicable and in any event not later than July 15, 1996,
the Company shall deliver to Buyer a copy of the June Report prepared using the
Company's historical policies and practices, consistently applied, together with
notice in reasonable detail as to the status of the renewals and consents
referred to in clauses (B) and (C) of the definition of 1996 Annualized
Management Fee Revenue. In the case (i) Buyer believes, after completion of its
audit referred to in clause (A) of such definition that the information set
forth in the June Report is not fairly presented or, if any renewal or consent
referred to in clauses (B) or (C) of such definition has not been received,
Buyer shall give notice to the Company within 10 days after delivery of the June
Report of its proposed adjustment to the aggregate agent commission and general
administrative expenses (collectively, "Margin") relating to such matters, and
the Company and Buyer shall seek in good faith to agree on the adjustment to
1996 Annualized Management Fee Revenue that is appropriate to reflect the Margin
(multiplied by twelve) attributable to such matters, which in the case of any
matter referred to in clause (B) or (C) of such definition shall mean all Margin
(multiplied by twelve) attributable to the contracts as to which any such matter
relates. If the Company and the Buyer are unable to agree on such adjustment
within seven days after delivery of such notice by Buyer, then such portion of
the adjustment that remains in dispute shall be referred
-39-
<PAGE>
to the Milwaukee office of Ernst & Young LLP ("E&Y") for the making of such
determination, which firm shall be requested to render such determination within
10 days thereafter. The determination of the parties of such adjustment or
portion thereof shall be final and conclusive, and the determination of E&Y of
all of disputed items referred to it shall be final and conclusive.
(b) The Company shall afford to Buyer and its representatives and to
E&Y full access to all work papers and other documents relating to the June
Report and to the persons involved in its preparation. The Stockholders, on
the one hand, and Buyer, on the other hand shall share equally the fees and
expenses of E&Y.
(c) If any adjustment is made to 1996 Annualized Management Fee Revenue in
respect of a failure to receive a consent from each of the Milwaukee Public
Schools and the City of Milwaukee for the transfer of its contract pursuant to
the Assumption Reinsurance Agreement, then the Company shall provide
administrative services to SDI comparable to those previously provided by it
with respect to such contract until the expiration of its then remaining term
(but not giving effect to any subsequent renewal unless consented to by Buyer)
for a fee equal to one-half of the administrative fee that would otherwise have
been payable to the Company.
6.11 FINANCIAL REPORTS. Stockholders shall give access to Buyer, the
Company and BDO Seidman to all records and personnel under their control,
including any affiliated entities, to the extent reasonably requested by Buyer
or the Company, so that all historical or pro forma financial statements and any
reports thereon required to be prepared or filed with the SEC or any other
governmental body relating to the Company or Buyer may be so prepared or filed
on a timely basis.
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
7.1 ASSUMPTION REINSURANCE AGREEMENT. The Stockholders agree to
cooperate with Buyer to cause all parties to agreements with SDI for dental
insurance coverage whose consent to the Assumption Reinsurance Agreement is
required, to consent to and agree to be bound by the terms of the Assumption
Reinsurance Agreement.
7.2 COVENANT NOT TO COMPETE. In furtherance of the Transaction hereunder
and more effectively to protect the value and goodwill of the assets and
business of the Company to be acquired hereby, each of the Stockholders
covenants and agrees that such Stockholder will not:
(a) for a period of five years following the Closing Date, directly
or indirectly (whether as principal, agent, partner,
-40-
<PAGE>
equity holder or otherwise) compete with Buyer by operating a Prepaid Dental
Insurance Plan anywhere in the State of Wisconsin, except that the Stockholders
may continue to service existing SDI accounts that are not subject to the
Assumption Reinsurance Agreement;
(b) without limiting the generality of the foregoing, cause or allow
any entity in which they have an interest to directly contract with any existing
SDI group that is subject to the Assumption Reinsurance Agreement;
(c) without limiting the generality of the foregoing, for a period of two
years following the Closing Date (i) cause or allow any entity in which they
have an interest to expand its network of dental providers by contracting with
Independent Dental Providers if, as a result of such contracting relationships,
such entity will have more than 15 additional Independent Dental Providers
within Milwaukee, Waukesha, Washington, Ozaukee, Racine and Kenosha counties in
the State of Wisconsin or more than 20 additional Independent Dental Providers
within Brown, Dane, Outagamie and Winnebago counties in the State of Wisconsin
(i.e., pursuant to this paragraph, existing Independent Dental Providers may be
replaced without regard to the limitations on growth set forth herein) or (ii)
cause or allow any such entity to market its network of Independent Dental
Providers to Prepaid Dental Insurance Plans, except in the case of SDC for the
service contract clients currently serviced by such providers on behalf of SDC,
as identified on Schedule 7.2. Any expansion of such entity's network of
Independent Dental Providers permitted by this clause (c) shall become part of
Buyer's network of Independent Dental Providers; and
(d) without limiting the generality of the foregoing, for six months
following the Closing Date, cause or allow any entity in which they have an
interest to offer or permit the dental service providers employed or otherwise
contracted by such entity, including contracted speciality services, to provide
dental services in facilities owned, leased or managed by such entity to provide
services under contract with any Prepaid Dental Insurance Plan other than those
identified on Schedule 7.2.
Without limiting the right of Buyer to pursue other legal and equitable
rights available to it for violation of this Section 7.2 by any of the
Stockholders, it is agreed that other remedies cannot fully compensate Buyer and
the Company for such violation and that Buyer and the Company shall each be
entitled to injunctive relief to prevent violation or continuing violation
thereof. It is the intent and understanding of each party hereto that if, in any
action before any court or agency legally empowered to enforce this Section 7.2,
any term, restriction, covenant or promise in this Section 7.2 is found to be
unreasonable and for that reason unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to make it
enforceable by such court or agency.
-41-
<PAGE>
7.3 SOLICITATION AND PURCHASE OF BUYER COMMON STOCK. No Stockholder shall,
without the prior approval of the Company, (a) solicit proxies with respect to
Buyer Common Stock or any other security convertible into Buyer Common Stock,
nor shall any such Stockholder become a "participant" in any "solicitation" (as
such terms are used in Rule 14a-11 under the Exchange Act) relating to the
election of directors of Buyer, or (b) join a partnership, limited partnership,
syndicate or other "group" within the meaning of Section 13(d)(3) of the
Exchange Act, or otherwise act in concert with any other person or "group" for
the purpose of acquiring, holding, voting or disposing of shares of Buyer Common
Stock.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
The obligations of Buyer under this Agreement shall, at the option of
Buyer, be subject to the satisfaction, on or prior to the Closing Date, of
the following conditions:
8.1 NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES. There
shall have been no breach by the Company or any of the Stockholders in the
performance of any of their respective covenants and agreements herein; none
of the representations and warranties of the Company or any Stockholder
contained or referred to herein shall be untrue or incorrect in any respect and
at the Closing Date such representations and warranties shall be true and
correct in all material respects as though made at the Closing Date except for
changes therein specifically permitted by this Agreement and there shall have
been delivered to Buyer a certificate or certificates to such effect, dated the
Closing date and signed on behalf of the Company by the President of the Company
and by each of the Stockholders.
8.2 NO CHANGES OR DESTRUCTION OF PROPERTY. Between the date hereof and
the Closing Date, there shall have been (a) no change or event having a Material
Adverse Effect on the Company; (b) no material adverse federal or state
legislative or regulatory change affecting the Company's business or its
services; and (c) no material damage to the Company's property or assets by
fire, flood, casualty, act of God or the public enemy or other cause, regardless
of insurance coverage for such damage; and there shall have been delivered to
Buyer a certificate or certificates to such effect, dated the Closing Date and
signed on behalf of the Company by the President of the Company and by each of
the Stockholders.
8.3 NO RESTRAINT OR LITIGATION. No action, suit, investigation or
proceeding shall have been instituted or threatened to restrain or prohibit or
otherwise challenge the legality or validity of the transactions contemplated
hereby. No temporary restraining order, preliminary or permanent injunction or
other order issued by a court of competent jurisdiction or other
-42-
<PAGE>
legal restraint or prohibition preventing the consummation of the Transaction
shall be in effect.
8.4 NECESSARY GOVERNMENTAL APPROVALS. The parties shall have received all
approvals and actions of or by all Governmental Bodies which are necessary to
consummate the transactions contemplated hereby, which are either specified in
Schedule 4.3 or otherwise required to be obtained prior to the Closing by
applicable Requirements of Laws or which are necessary to prevent a Material
Adverse Effect on the Company.
8.5 NECESSARY CONSENTS. The Company or the Stockholders shall have received
consents, in form and substance reasonably satisfactory to Buyer, to the
transactions contemplated hereby from the other parties to all contracts,
leases, agreements and permits to which the Company is a party or by which the
Company or any of its assets is affected which are necessary to prevent a
Material Adverse Effect on the Company.
8.6 ASSUMPTION REINSURANCE AGREEMENT. The Assumption Reinsurance Agreement
shall have been duly executed and delivered by SDI, be in full force and effect
and shall have been approved to the extent necessary by the Wisconsin OCI.
8.7 SDC PROVIDER AGREEMENT. The SDC Provider Agreement shall have been duly
executed and delivered by SDC, be in full force and effect and shall have been
approved to the extent necessary by the Wisconsin OCI.
8.8 TERMINATION OF AGREEMENTS. All agreements between the Company and SDI,
including the Management Agreement dated as of July 15, 1995, shall have been
terminated without the Company retaining any liability with respect thereto,
regardless of the date such liability was incurred.
8.9 DETERMINATION OF 1996 ANNUALIZED MANAGEMENT FEE REVENUE. Any dispute
with respect to the determination of 1996 Annualized Management Fee Revenue
pursuant to Section 6.10 shall have been finally resolved.
8.10 PAYMENT OF GRANBOW SETTLEMENT. All liabilities of the Company for
payments to be made to Gregory J. Granbow pursuant to the arbitration award
dated December 27, 1993 shall have been discharged and evidence of such
discharge shall have been delivered to Buyer in a form reasonably satisfactory
to Buyer.
8.11 DEIKE OPTION. An option agreement between the Company and Don A. Deike
setting forth the terms and conditions of the Option in form reasonably
satisfactory to Buyer shall have been executed, and a copy thereof shall have
been delivered to Buyer.
-43-
<PAGE>
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND THE STOCKHOLDERS
-----------------------------------
The obligations of the Company and each of the Stockholders under this
Agreement shall, at the option of the Company and each of the Stockholders, be
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions:
9.1 NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES. There shall
have been no material breach by Buyer in the performance of any of their
respective covenants and agreements herein; none of the representations and
warranties of Buyer contained or referred to herein shall be untrue or incorrect
in any material respect and at the Closing Date such representations and
warranties shall be true and correct in all material respects as though made at
the Closing Date except for changes therein specifically permitted by this
Agreement; and there shall have been delivered to the Stockholders a certificate
or certificates to such effect, dated the Closing Date and signed on behalf of
Buyer by the Chief Executive Officer, President or any Vice President of Buyer.
9.2 NO RESTRAINT OR LITIGATION. No action, suit or proceeding by any
Governmental Body shall have been instituted or threatened to restrain, prohibit
or otherwise challenge the legality or validity of the transactions contemplated
hereby.
9.3 NECESSARY GOVERNMENTAL APPROVALS. The parties shall have received all
approvals and actions of or by all Governmental Bodies necessary to consummate
the transactions contemplated hereby, which are required to be obtained prior to
the Closing by applicable Requirements of Laws.
9.4 DETERMINATION OF 1996 ANNUALIZED MANAGEMENT FEE REVENUE. Any dispute
with respect to the determination of 1996 Annualized Management Fee Revenue
pursuant to Section 6.10 shall have been finally resolved.
ARTICLE X
INDEMNIFICATION
---------------
10.1 INDEMNIFICATION BY THE STOCKHOLDERS. From and after the Closing Date,
each of the Stockholders shall jointly and severally indemnify and hold harmless
each Buyer Group Member from and against any and all Losses and Expenses
incurred by such Buyer Group Member in connection with or arising from:
(a) any breach or failure to perform, or alleged breach or failure to
perform, by the Company or any Stockholder of any of their respective
agreements, covenants or obligations in this Agreement (other than in Section
4.7, as to which Article XI
-44-
<PAGE>
applies) or in any Company Ancillary Agreement or Stockholder Ancillary
Agreement;
(b) any breach, or alleged breach, of any warranty or the inaccuracy, or
alleged inaccuracy, of any representation of the Company or any Stockholder
contained or referred to in this Agreement or any certificate delivered by or on
behalf of the Company or any Stockholder pursuant hereto (other than in Section
4.7, as to which Article XI applies); or
(c) any liability resulting from the failure of SDC to satisfy when due any
liability assumed by it, or any liability resulting from the contribution of any
asset to SDC by the Company, pursuant to the spin-off of SDC by the Company to
the Stockholders effective December 31, 1995.
provided, however, that the Stockholders shall not be required to indemnify and
hold harmless hereunder with respect to any provision of Article IV (other than
Sections 4.1., 4.16 and 4.26, as to which this proviso shall not apply) until
the aggregate amount (without duplication) of Losses and Expenses borne by the
Buyer Group Members with respect thereto (when added to any amounts which any
Buyer Group Member would be entitled to recover under Section 11.1(a) but for
the proviso thereto) exceeds $50,000, and the Buyer Group Members shall be
entitled to indemnification hereunder with respect to the aggregate amount of
Losses and Expenses in excess of such amount; provided, however, that each
Stockholder's liability pursuant to this Section 10.1 shall be limited to the
aggregate value of such Stockholder's pro rata portion of the Total Conversion
Amount (such value to be calculated based on the Closing Price on the Closing
Date and treating for computing such pro rata portion the Option as having been
exercised).
The indemnification provided for in this Section 10 1 shall terminate three
years after the Closing Date (and no claims shall be made by any Buyer Group
Member under this Section 10.1 thereafter), except that the indemnification
obligation of the Stockholders shall continue as to:
(i) the representations and warranties set forth in Sections 4.1 and 4.16
and the covenants of each of the Stockholders set forth in Sections 7.3, 13.2,
13.6 and 13.13, as to all of which no time limitation shall apply;
(ii) any Loss or Expense of which any Buyer Group Member has notified each
of the Stockholders in accordance with the requirements of Section 10.3 on or
prior to the date such indemnification obligation would otherwise terminate in
accordance with this Section 10.1, as to which the indemnification obligation
of the Stockholders shall continue until the liability of each of the
Stockholders shall have been determined pursuant to this Article X, and each
Stockholder shall have reimbursed all Buyer Group Members for
-45-
<PAGE>
the full amount of such Loss and Expense for which such Stockholder is
responsible in accordance with this Article X.
10.2 NOTICE AND DETERMINATION OF CLAIMS.
(a) If any Buyer Group Member believes that it has suffered or incurred
any Loss or incurred any Expense, whether or not the applicable dollar
limitation specified by Section 10.1 has been exceeded, such Buyer Group Member
(the "Indemnified Person"), shall so notify the parties obligated to provide
indemnification to such Indemnified Person (the "Indemnitor") promptly in
writing (the "Claim Notice") describing such Loss or Expense, the amount
thereof, if known, and the method of computation of such Loss or Expense, all
with reasonable particularity and containing a reference to the provisions of
this Agreement, any certificate delivered pursuant hereto or any Company
Ancillary Agreement or Stockholder Ancillary Agreement in respect of which such
Loss or Expense shall have occurred; provided, however, that the omission by the
Indemnified Person to give notice as provided herein shall not relieve the
Indemnitor of its indemnification obligation under this Article X except to the
extent that such omission results in a failure of actual notice to the
Indemnitor and such Indemnitor is materially damaged as a result of such failure
to give notice.
(b) After the giving of any Claim Notice pursuant hereto, the amount of
indemnification to which an Indemnified Person shall be entitled under this
Article X shall be determined: (i) by the written agreement between the
Indemnified Person and the Indemnitor; (ii) by a final judgment or decree of any
court of competent jurisdiction; or (iii) by any other means to which the
Indemnified Person and the Indemnitor shall agree. The judgment or decree of a
court shall be deemed final when the time for appeal, if any, shall have expired
and no appeal shall have been taken or when all appeals taken shall have been
finally determined. The Indemnified Person shall have the burden of proof in
establishing the amount of Loss and Expense suffered by it.
(c) If there shall be any conflicts between the provisions of this Article
X and Section ll(c) (relating to Tax contests), the provisions of Section
ll.l(c) shall control with respect to Tax contests.
(d) Any payment by any Stockholder under this Article X shall be made on
an After-Tax Basis such that the amount owing is reduced by any past, current or
future Tax benefit recognized by the Indemnified Person as a result of the
application of the payments received from the Stockholders.
10.3 THIRD PERSON CLAIMS. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceeding by
a third Person, the Indemnified Persons shall give such notice thereof to the
Indemnitor not later than 20 business days prior to the time any response to the
-46-
<PAGE>
asserted claim is required, if possible, and in any event within 15 days
following the date such Indemnified Person has actual knowledge thereof;
provided, however, that the omission by such Indemnified Person to give notice
as provided herein shall not relieve the Indemnitor of its indemnification
obligation under this Article X except to the extent that such omission results
in a failure of actual notice to the Indemnifying Person and such Indemnifying
Person is materially damaged as a result of such failure to give notice. The
Indemnified Person shall have the right to conduct and control, through counsel
of its choosing, the defense, compromise or settlement of any third Person
claim, action or suit against such Indemnified Person as to which
indemnification will be sought by any Indemnified Person from any Indemnitor
hereunder, and in any such case the Indemnitor shall cooperate in connection
therewith and shall furnish such records, information and testimony and attend
such conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested by the Indemnified Person in connection therewith;
provided, that the Indemnitor may participate, through counsel chosen by it and
at its own expense, in the defense of any such claim, action or suit as to which
the Indemnified Person has so elected to conduct and control the defense
thereof; and provided, further, that the Indemnified Person shall not, without
the written consent of the Indemnitor (which written consent shall not be
unreasonably withheld), pay, compromise or settle any such claim, action or
suit, except that no such consent shall be required if, following a written
request from the Indemnified Person, the Indemnitor shall fail, within 14 days
after the making of such request, to acknowledge and agree in writing that, if
such claim, action or suit shall be adversely determined, such Indemnitor has an
obligation to provide indemnification hereunder to such Indemnified Person.
Notwithstanding the foregoing, the Indemnified Person shall have the right to
pay, settle or compromise any such claim, action or suit without such consent,
provided that in such event the Indemnified Person shall waive any right to
indemnity therefor hereunder unless such consent is unreasonably withheld.
ARTICLE XI
TAXES
-----
11.1 LIABILITY FOR TAXES.
(a) Except as shown as a liability or reserve on the Balance Sheet, each
of the Stockholders shall be jointly and severally liable for, and indemnify
each Buyer Group Member against, all Taxes imposed on the Company or for which
the Company may otherwise be liable for any taxable year or period that ends on
or before the Closing Date and, with respect to any Straddle Period, the portion
of such Straddle Period ending on and including the Closing Date.
-47-
<PAGE>
(b) Buyer shall be liable for, and indemnify the Stockholders against,
Taxes imposed on the Company for any taxable year or period that begins after
the Closing Date and, with respect to any Straddle Period, the portion of such
Straddle Period beginning after the Closing Date.
(c) For purposes of paragraphs (a) and (b) of this Section 12.1, whenever
it is necessary to determine the liability for Taxes of the Company for a
Straddle Period, the determination of the Taxes of the Company for the portion
of the Straddle Period ending on and including, and the portion of the Straddle
Period beginning after, the Closing Date shall be determined by assuming that
the Straddle Period consisted of two taxable years or periods, one which ended
at the close of the Closing Date and the other which began at the beginning of
the day following the Closing Date, and items of income, gain, deduction, loss
or credit of the Company for the Straddle Period shall be allocated between such
two taxable years or periods on a "closing of the books basis" by assuming that
the books of the Company or such Subsidiary were closed at the close of the
Closing Date, provided, however, that exemptions, allowances or deductions that
are calculated on an annual basis, such as the deduction for depreciation, shall
be apportioned between such two taxable years or periods on a daily basis.
(d) Stockholders will pay, and will jointly and severally indemnify Buyer
and the Company against, any real property transfer or gains Tax, sales Tax, use
Tax, stamp Tax, stock transfer Tax, or other similar Tax imposed on the
transactions contemplated by this Agreement.
(e) Within 20 days after the date of this Agreement, Stockholders will
deliver or cause to be delivered to Buyer true and complete copies of: (i) all
income Tax Returns of the Company requested by Buyer; (ii) any other Tax Returns
requested by Buyer, as may be relevant to the Company or the assets or
operations thereof; and (iii) any work papers or other supporting data requested
by Buyer relating to "income Taxes payable" reflected in the Audited Financial
Statements and the Unaudited Financial Statements, relating to Tax Returns made
available pursuant to (i) or (ii), or relating to Tax Returns referred to in (i)
or (ii) not yet filed.
11.2 Filing of Tax Returns. Stockholders shall timely file or cause to be
timely filed when due (taking into account all extensions properly obtained) all
Tax Returns that are required to be filed by or with respect to the Company on
or prior to the Closing Date and the Stockholders shall remit or cause to be
remitted any Taxes due in respect of such Tax Returns, and Buyer shall timely
file or cause to be timely filed when due (taking into account all extensions
properly obtained) all Tax Returns that are required to be filed by or with
respect to the Company after the Closing Date and Buyer shall remit or cause to
be remitted any Taxes due in respect of such Tax Returns. Any Tax Return
required
-48-
<PAGE>
to be filed by Buyer pursuant to this Section 11.2 relating in whole or in part
to Taxes for which the Stockholders are liable pursuant to Section 11.1 shall be
submitted to the Stockholders for the Stockholders' approval not later than 30
days prior to the due date for the filing of such Tax Return. The Stockholders
or Buyer shall pay the other party for the Taxes for which the Stockholders or
Buyer, respectively, are liable pursuant to Section 11.1 but which are payable
with any Tax Return to be filed by the other party pursuant to this Section 11.2
upon the written request of the party entitled to payment, setting forth in
detail the computation of the amount owed by the Stockholders or Buyer, as the
case may be, but in no event earlier than 10 days prior to the due date for the
filing of such Tax Return. All Tax Returns which the Stockholders are required
to file or cause to be filed in accordance with this Section 11.2 shall be
prepared and filed in a manner consistent with past practice and, on such Tax
Returns, no position shall be taken, elections made or method adopted that is
inconsistent with positions taken, elections made or methods used in preparing
and filing similar Tax Returns in prior periods (including, but not limited to,
positions which would have the effect of deferring income to periods for which
Buyer is liable or accelerating deductions to periods for which the Stockholders
are liable).
11.3 CONTEST PROVISIONS. Buyer shall notify the Stockholders in writing
upon receipt by Buyer, any of its Affiliates, or the Company of notice of any
pending or threatened federal, state, local or foreign Tax audits or assessments
which may materially affect the Tax liabilities of the Company for which the
Stockholders would be required to indemnify Buyer pursuant to this Article XI,
provided that failure to comply with this provision shall not affect Buyer's
right to indemnification hereunder except to the extent such failure materially
impairs the Stockholders' ability to contest any such Tax liabilities.
The Stockholders shall have the sole right to represent the Company's
interests in any Tax audit or administrative or court proceeding relating to
taxable periods ending on or before the Closing Date, and to employ counsel of
its choice at its expense, provided, however, that Buyer and its representatives
shall be permitted, at Buyer's expense, to be present at, and participate in,
any such audit or proceeding. Notwithstanding the foregoing, neither the
Stockholders nor any Affiliate of the Stockholders shall be entitled to settle,
either administratively or after the commencement of litigation, any claim for
Taxes which would adversely affect the liability for Taxes of Buyer, the Company
or any Affiliate thereof for any period after the Closing Date to any extent
(including, but not limited to, the imposition of income Tax deficiencies, the
reduction of asset basis or cost adjustments, the lengthening of any
amortization or depreciation periods, the denial of amortization or depreciation
deductions, or the reduction of loss or credit carry forwards) without the prior
written consent of Buyer, which consent may be withheld in the sole discretion
of
-49-
<PAGE>
Buyer unless the Stockholders have indemnified Buyer in a manner acceptable to
Buyer against the effects of any such settlement.
11.4 ASSISTANCE AND COOPERATION. After the Closing Date, the Stockholders
and Buyer shall (and cause their respective Affiliates to):
(a) timely sign and deliver such certificates or forms as may be necessary
or appropriate to establish an exemption from (or otherwise reduce), or file Tax
Returns or other reports with respect to, Taxes described in Section 11.1(d)
(relating to sales, transfer and similar Taxes);
(b) assist the other party in preparing any Tax Returns which such other
party is responsible for preparing and filing in accordance with Section 11.2;
(c) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns of the Company;
(d) make available to the other and to any taxing authority as reasonably
requested all information, records, and documents relating to Taxes of the
Company;
(e) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments of the Company for taxable periods for
which the other may have a liability under this Article XI; and
(f) furnish the other with copies of all correspondence received from any
taxing authority in connection with any Tax audit or information request with
respect to any such taxable period.
11.5 AFTER-TAX BASIS: ADJUSTMENT TO PURCHASE PRICE. Any payment by the
Stockholders under this Article XI shall be made on an After-Tax Basis such that
the amount owing is reduced by any past, current or future Tax benefit
recognized by the Indemnified Person as a result of application of the payments
received from the Stockholders.
11.6 SURVIVAL OF OBLIGATIONS. Notwithstanding anything to the contrary in
this Agreement, the obligations of the parties set forth in this Article XI
shall be unconditional and absolute and shall remain in effect without
limitation as to time.
11.7 RELATIONSHIP OF INDEMNITIES. The indemnification obligations of the
Stockholders pursuant to this Article XI (except pursuant to Section 11.1(a)
(with respect to Taxes relating to any portion of 1996) and Section 11.1(d))
shall be aggregated with any indemnification obligations pursuant to Article X
in determining the limitation on liability under Article X, and the
indemnification under this Article XI (except under Section 11.1(a)
-50-
<PAGE>
(with respect to Taxes relating to any portion of 1996) and Section 11.1(d))
shall be limited by operation of the provisos contained in Section 10.1, such
that (i) the Stockholders shall not be required to indemnify pursuant to this
Article XI (except pursuant to Section 11.1(a) (with respect to Taxes relating
to any portion of 1996) and Section 11.1(d)), as to which the limitations set
forth in Section 10.1 shall not apply) until the aggregate amount of such
indemnification liabilities, when added to any Losses and Expenses not subject
to indemnity pursuant to Section 10.1 due to the application of the first
proviso thereof, exceeds $50,000 and (ii) each Stockholder's liability pursuant
to this Article XI (except pursuant to Section 11.1(a) (with respect to Taxes
relating to any portion of 1996) and Section 11.1(d)) as to which the
limitations set forth in Section 10.1 shall not apply) shall be limited, when
added to any Losses and Expenses subject to indemnity pursuant to Section 10.1,
to the aggregate value of such Stockholder's pro rata portion of the Total
Conversion Amount (such value to be calculated based on the Closing Price on the
Closing Date and treating for computing such pro rata portion the Option as
having been exercised).
ARTICLE XII
TERMINATION
-----------
12.1 TERMINATION RIGHTS. Anything contained in this Agreement to the
contrary notwithstanding, this Agreement may be terminated at any time prior to
the Closing Date:
(a) by the mutual consent of all of the parties hereto;
(b) by any party if the closing date shall not have occurred on or before
September 1, 1996 (or such later date as may be mutually agreed to by all of the
parties hereto);
(c) by Buyer in the event of any material breach by any stockholder or the
company of any of their respective agreements, representations or warranties
contained herein and the failure of any Stockholder or the Company to cure such
breach within seven days after receipt of notice from Buyer requesting that such
breach be cured; or
(d) by the Company in the event of any material breach by Buyer of any of
its respective agreements, representations or warranties contained herein and
the failure of Buyer to cure such breach within seven days after receipt of
notice from the Company requesting that such breach be cured.
12.2 NOTICE OF TERMINATION. Any party desiring to terminate this Agreement
pursuant to Section 12.1 shall give notice of such termination to each of the
other parties to this Agreement.
-51-
<PAGE>
12.3 EFFECT OF TERMINATION. In the event that this Agreement shall be
terminated pursuant to this Article XII, all further obligations of the parties
under this Agreement (other than Sections 13.2 and 13.10) shall be terminated
without further liability of any party to the others; provided, however, that
nothing herein shall relieve any party from liability for its willful breach of
this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
------------------
13.1 SURVIVAL OF OBLIGATIONS. All representations, warranties, covenants
and obligations contained in this Agreement shall survive the consummation of
the transactions contemplated by this Agreement; provided, however, that, except
for Section 4.1. 4.7 and Section 4.16, as to which no time limitation shall
apply, and except as otherwise provided in Articles VIII and XI, the
representations and warranties contained in Articles IV and V shall terminate on
the third anniversary of the Closing Date. Except as otherwise provided herein,
no claim shall be made for the breach of any representation or warranty
contained in Articles IV or V or under any certificate delivered with respect
thereto under this Agreement after the date on which such representations and
warranties terminate as set forth in this Section.
13.2 CONFIDENTIAL NATURE OF INFORMATION. Each party agrees that it will
treat in confidence all documents, materials and other information which it
shall have obtained regarding the other parties during the course of the
negotiations leading to the consummation of the transactions contemplated hereby
(whether obtained before or after the date of this Agreement), the investigation
provided for herein and the preparation of this Agreement and other related
documents, and, in the event the transactions return to the other parties all
copies of nonpublic documents and materials which have been furnished in
connection therewith. Such documents, materials and information shall not be
communicated to any third Person (other than, in the case of Buyer, to their
counsel, accountants, financial advisors or lenders, and in the case of the
Company and the Stockholders, to their counsel, accountants or financial
advisors). No other party shall use any confidential information in any manner
whatsoever except solely for the purpose of evaluating the proposed Transaction;
provided, however, that after the Closing Date, Buyer may use or disclose any
confidential information included in the assets of the Company as of the Closing
Date or otherwise reasonably related to the assets or business of the Company.
The obligation of each party to treat such documents, materials and other
information in confidence shall not apply to any information which (a) is or
becomes available to such party from a source other than such party, (b) is or
becomes available to the public other than as a result of disclosure by such
party or its agents, (c) is required to be disclosed under
-52-
<PAGE>
applicable law or judicial process, but only to the extent it must be disclosed,
or (d) such party reasonably deems necessary to disclose to obtain any of the
consents or approvals contemplated hereby.
13.3 NO PUBLIC ANNOUNCEMENT. No party hereto shall, without the approval of
all of the other parties, make any press release or other public announcement
concerning the transactions contemplated by this Agreement, except as and to the
extent that any such party shall be so obligated by law or the rules of any
stock exchange, in which case such party shall so advise the other parties and
all parties shall use their reasonable best efforts to cause a mutually
agreeable release or announcement to be issued; provided that the foregoing
shall not preclude communications or disclosures necessary to implement the
provisions of this Agreement or to comply with accounting and SEC disclosure
obligations.
13.4 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered when
delivered personally or delivered by facsimile transmission (with a confirmation
report thereon) or four days after being mailed by registered or certified mail,
return receipt requested, or one day after being sent by private overnight
courier addressed as follows:
If to the Company
(after the Closing Date)
or Buyer to:
First Commonwealth, Inc.
444 N. Wells Street
Chicago, IL 60610
Attention: Christopher C. Multhauf
Fax: (312) 832-0065
-53-
<PAGE>
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: John J. Sabl
Fax: (312) 853-7036
If to the Company (prior
to the Closing Date) or
each of the Stockholders, to:
Smileage Dental Services, Inc.
9052 North Deerbrook Trail
Milwaukee, Wisconsin 53223
Attention: Don A. Deike
Fax: (414) 354-3177
with a copy to:
Niebler & Muren, S.C.
450 N. Sunnyslope Road
Chancelry Park I
Brookfield, WI 53008
Attention: Joseph Niebler, Sr.
Fax: (414) 784-7630
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
13.5 Successors and Assigns.
(a) The rights of each party under this Agreement shall not be assignable
by such party prior to the Closing Date without the written consent of each of
the other parties, except that the rights of Buyer hereunder may be assigned
prior to the Closing Date, without the consent of any other party hereto, to any
corporation all of the outstanding capital stock of which is owned or controlled
by Buyer; provided that (i) the assignee shall assume in writing all of Buyer's
obligations hereunder, (ii) Buyer shall not be released from any of its
obligations hereunder by reason of such assignment and (iii) the obligations of
the Company and the Stockholders under this Agreement shall be subject to the
delivery by such assignee, on or prior to the Closing Date, of a certificate
signed on its behalf containing representations and warranties similar to those
made by Buyer in Article V. Following the Closing Date, any party may assign any
of its rights hereunder, but no such assignment shall relieve it of its
obligations hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and permitted assigns. The successors and
permitted assigns hereunder shall include without limitation, in the case of
Buyer, any
-54-
<PAGE>
permitted assignee as well as the successors in interest to such permitted
assignee (whether by merger, liquidation (including successive mergers or
liquidations) or otherwise). Nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon any Person other than the parties
and successors and assigns permitted by this Section 13.5 any right, remedy or
claim under or by reason of this Agreement.
13.6 Access to Records After Closing Date. For a period of six years after
the Closing Date, Buyer, the Company and their respective representatives shall
have reasonable access to all of the books and records relating to the Company
or its assets or business which any of the Stockholders or their Affiliates may
retain after the Closing Date. Such access shall be afforded by the Stockholders
and their Affiliates upon receipt of reasonable advance notice and during normal
business hours. Buyer or the Company, as the case may be, shall be solely
responsible for any costs and expenses incurred by it pursuant to this Section
13.6. If any of the Stockholders or any of their Affiliates shall desire to
dispose of any of such books and records prior to the expiration of such six-
year period, such Stockholder shall, prior to such disposition, give Buyer and
the Company a reasonable opportunity, at Buyer's or the Company's expense, to
segregate and remove such books and records as Buyer or the Company may select.
13.7 Entire Agreement; Amendments. This Agreement and the Exhibits and
Schedules referred to herein and the documents delivered pursuant hereto contain
the entire understanding of the parties hereto with regard to the subject matter
contained herein or therein, and supersede all prior agreements, understandings
or letters of intent between or among any of the parties hereto, including
without limitation the Confidentiality Agreement. This Agreement shall not be
amended, modified or supplemented except by a written instrument signed by an
authorized representative of each of the parties hereto.
13.8 Interpretation. Titles to articles and headings to sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement. The Schedules and
Exhibits referred to herein shall be construed with and as an integral part of
this Agreement to the same extent as if they were set forth verbatim herein.
Except as expressly stated to the contrary herein, all dollar amounts in this
Agreement refer to lawful money of the United States of America.
13.9 Waivers. Any term or provision of this Agreement may be waived, or the
time for its performance may be extended, by the party or parties entitled to
the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any party, it is
authorized in writing by an authorized representative of such party. The failure
of any party hereto to enforce at any time any provision of this
-55-
<PAGE>
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
13.10 FEES AND EXPENSES. Except as otherwise provided in this Section
13.10, each of the parties hereto shall bear its own costs and expenses
(including, without limitation, fees and disbursements of its counsel,
accountants and other financial, legal, accounting or other advisors), incurred
by it or its Affiliates in connection with the preparation, negotiation,
execution, delivery and performance of this Agreement and each of the other
documents and instruments executed in connection with or contemplated by this
Agreement and the consummation of the transactions contemplated hereby and
thereby (collectively, the "Acquisition Expenses"); provided, however, that, the
Acquisition Expenses of the Stockholders and the Company shall be borne entirely
by the Stockholders and on the Closing Date the Stockholders shall reimburse the
Company for any additional Acquisition Expenses paid by the Company prior to the
Closing Date in connection with the foregoing. The Stockholders and the Company
shall furnish Buyer with documentation at the Closing demonstrating any
reimbursement required by the immediately preceding sentence.
13.11 PARTIAL INVALIDITY. Wherever possible, each provision hereof shall be
interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder of
such invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.
13.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be considered an original instrument, but
all of which shall be considered one and the same agreement, and shall become
binding when one or more counterparts have been signed by each of the parties
hereto and delivered to each of the other parties.
13.13 FURTHER ASSURANCES. With respect to any license, certificate,
approval, authorization, agreement, contract, lease, easement and other
commitment included in the Company's assets which requires the consent of any
third Person to the Transaction, if any such consent has not been obtained prior
to the Closing Date, thereafter each of the Stockholders shall cooperate with
the Company and Buyer at their request in endeavoring to obtain such consent
promptly, and if any such consent is unobtainable, to use its reasonable best
efforts to secure to the Corporation and Buyer
-56-
<PAGE>
the benefits thereof in some other manner; provided, however, that nothing
herein shall relieve any of the Stockholders of its obligations under Section
6.6.
13.14 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Wisconsin.
13.15 SUBMISSION TO JURISDICTION. Each of the parties hereto hereby
irrevocably submits in any suit, action or proceeding arising out of or related
to this Agreement or any of the transactions contemplated hereby to the non-
exclusive jurisdiction of the United States District Court for the Eastern
District of Wisconsin and the jurisdiction of any circuit court of the State of
Wisconsin located in Milwaukee County, and irrevocably waives any immunity from
the jurisdiction of such courts and any claim of improper venue, forum non
conveniens or any similar objection which it might otherwise be entitled to
raise in any such suit, action or proceeding.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
FIRST COMMONWEALTH, INC.
(Corporate Seal)
By: /s/ Christopher C. Multhauf
------------------------------
Christopher C. Multhauf
Chairman and Chief Executive
ATTEST: Officer
/s/ David W. Mulligan
- ----------------------------
David W. Mulligan
Secretary
SMILEAGE DENTAL SERVICES, INC.
(Corporate Seal)
By: /s/ Don A. Dieke
------------------------------
Don A. Dieke
President
ATTEST:
/s/ James H. Bryant
- ----------------------------
James H. Bryant
Secretary
/s/ Jesley C. Ruff
-----------------------------------
Jesley C. Ruff
/s/ Robert Chonjacki
-----------------------------------
Robert Chojnacki
/s/ David H. Erickson
-----------------------------------
David H. Erickson
/s/ Stephen F. Froehlich
-----------------------------------
Stephen F. Froehlich
/s/ Gerald D. Patterson
-----------------------------------
Gerald D. Patterson
/s/ Don A. Dieke
-----------------------------------
Don A. Deike
/s/ John Sebanc
-----------------------------------
John Sebanc
ANN SEBANC TRUST
By: /s/ Ann Sebanc
------------------------------
Ann Sebanc, Trustee
-58-
<PAGE>
EXHIBIT 99.1
REGISTRATION RIGHTS AGREEMENT
dated as of July 18, 1996
among
FIRST COMMONWEALTH, INC.
and
THE HOLDERS OF REGISTRABLE SECURITIES REFERRED TO HEREIN
<PAGE>
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (this "Agreement") dated as of July 18,
1996 among First Commonwealth, Inc., a Delaware Corporation (the "Company"), and
the Persons named on Schedule 1 as Holders (each a "Holder" and collectively,
the "Holder").
RECITALS
--------
WHEREAS, simultaneously with the execution hereof the Company is
issuing to the Holders an aggregate of 224,456 share of Common Stock shares
(the "Shares") and to Don A. Deike an option to purchase 6,943 of Common Stock
(the "Option") pursuant to the Stock Exchange Agreement (the "Stock Exchange
Agreement") dated as of July 18, 1996 amont the Company, Smileage Dental
Services, Inc., a Wisconsin Corporation ("SDS"), and the Holders in exchange
for all of the issued and outstanding capital stock of SDS;
WHEREAS, the parties hereto desire to set forth the Holders' rights
and the Company's obligations to cause the registration of the Registrable
Securities pursuant to the Securities Act;
NOW, THEREFORE, in consideration of the exchange of shares pursuant to
the Stock Exchange Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions and Usage.
As used in this Agreement:
1.1 Definitions.
Commission. "Commission" shall mean the Securities and Exchange
Commission.
Common Stock. "Common Stock" shall mean (i) the common stock, par
value $.001 per share, of the Company, and (ii) shares of capital stock of the
Company issued by the Company in respect of or in exchange for shares of such
common stock in connection with any stock dividend or distribution, stock
split-up, recapitalization, recombination or exchange by the Company generally
of shares of such common stock.
Continuously Effective. "Continuously Effective", with respect to
a specified registration statement, shall mean that it shall not cease to be
effective and available for Transfers of Registrable Securities thereunder for
longer than either (i) any ten (10) consecutive business days, or (ii) an
aggregate of fifteen (15) business days during the period specified in the
relevant provision of this Agreement.
<PAGE>
Demanding Holders. "Demanding Holders" shall have the meaning set
forth in Section 2.1.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act
of 1934.
Holder. "Holders" shall mean the Persons named on Schedule 1 as Holders
of Registrable Securities.
Majority Selling Holders. "Majority Selling Holders" means those
Selling Holders whose Registrable Securities included in such registration
represent a majority of the Registrable Securities of all Selling Holders
included therein.
Person. "Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
Piggyback Registration. "Piggyback Registration" shall have the meaning
set forth in Section 3.
Register, Registered and Registration. "Register", "registered", and
"registration" shall refer to a registration effected by preparing and filing
a registration statement or similar document in compliance with the Securities
Act, and the declaration or ordering by the Commission of effectiveness of such
registration statement or document.
Registrable Securities. "Registrable Securities" shall mean: (i) the
Shares owned by Holders on the date hereof, and owned by a Holder on the date
of determination, (ii) any shares of Common Stock or other securities issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange by the Company generally for, or in replacement by the Company
generally of, such Shares; (iii) any securities issued in exchange for Shares in
any merger or reorganization of the Company and (iv) any shares of Common Stock
issued to Don A. Deike upon the exercise of the Option; provided, however, that
Registrable Securities shall not include any Securities which have theretofore
been registered and sold pursuant to the Securities Act or which have been sold
to the public pursuant to Rule 144 or any similar rule promulgated by the
Commission pursuant to the Securities Act, and, provided further, the Company
shall have no obligation under Sections 2 and 3 to register any Registrable
Securities of a Holder if the Company shall deliver to the Holders requesting
such registration an opinion of counsel reasonably satisfactory to such Holders
and its counsel to the effect that the proposed sale or disposition of all of
the Registrable Securities for which registration was requested does not require
registration under the Securities Act for a sale or disposition in a single
public sale, and offers to remove any and all legends restricting
-2-
<PAGE>
transfer from the certificates evidencing such Registrable Securities.
Registrable Securities then outstanding. "Registrable Securities then
outstanding" shall mean, with respect to a specified determination date, the
Registrable Securities owned by all Holders on such date.
Registration Expenses. "Registration Expenses" shall have the meaning
set forth in Section 6.1.
Securities Act. "Securities Act" shall mean the Securities Act of 1933.
Selling Holders. "Selling Holders" shall mean, with respect to a
specified registration pursuant to this Agreement, Holders whose Registrable
Securities are included in such registration.
Shares. "Shares" shall mean the shares of Common Stock held by the
Holders on the date of this Agreement.
Shelf Registration. "Shelf Registration" shall have the meaning set forth
in Section 2.1.
Transfer. "Transfer" shall mean and include the act of selling, giving,
transferring, creating a trust (voting or otherwise), assigning or otherwise
disposing of (other than pledging, hypothecating or otherwise transferring as
security) (and correlative words shall have correlative meanings); provided
however, that any transfer or other disposition upon foreclosure or other
exercise of remedies of a secured creditor after an event of default under or
with respect to a pledge, hypothecation or other transfer as security shall
constitute a "Transfer".
Violation. "Violation" shall have the meaning set forth in Section 7.1.
1.2 Usage.
(a) References to a Person are also references to its assigns and
successors in interest (by means of merger, consolidation or sale of all
or substantially all the assets of such Person or otherwise, as the case
may be).
(b) References to Registrable Securities "owned" by a Holder shall
include Registrable Securities beneficially owned by such Person but which
are held of record in the name of a nominee, trustee, custodian, or other
agent, but shall exclude shares of Common Stock held by a Holder in a fiduciary
capacity for customers of such Person.
(c) References to a document are to it as amended, waived and otherwise
modified from time to time and references to
-3-
<PAGE>
a statute or other governmental rule are to it as amended and otherwise
modified from time to time (and references to any provision thereof shall
include references to any successor provision).
(d) References to Sections or to Schedules or Exhibits are to sections
hereof or schedules or exhibits hereto, unless the context otherwise requires.
(e) The definitions set forth herein are equally applicable both to
the singular and plural forms and the feminine, masculine and neuter forms
of the terms defined.
(f) The term "including" and correlative terms shall be deemed to be
followed by "without limitation" whether or not followed by such words or words
of like import.
(g) The term "hereof" and similar terms refer to this Agreement as a
whole.
(h) The "date of" any notice or request given pursuant to this Agreement
shall be determined in accordance with Section 11.2.
Section 2. Shelf Registration.
2.1 (a) At any time on or after November 16, 1996, if one or more Holders
that own an aggregate of 51% or more of the Registrable Securities then
outstanding shall make a written request to the Company (the "Demanding
Holders"), the Company shall promptly cause there to be filed with the
Commission a registration statement in accordance with the Securities Act for an
offering on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act (a "Shelf Registration"), and each Demanding Holder shall be
entitled to have included therein all or such number of such Demanding Holder's
Registrable Securities, as the Demanding Holder shall report in writing. Any
request made pursuant to this Section 2.1 shall be addressed to the attention of
the Secretary of the Company, and shall specify the number of Registrable
Securities to be registered, that all of the Holders have been notified by the
Demanding Holders that the request for Shelf Registration is being made and have
either joined in such request or declined to join in such request and the
intended methods of disposition thereof. The Demanding Holders may submit a
request for Shelf Registration prior to November 16, 1996, but any such request
shall be deemed to be a request to file the Shelf Registration as soon as
practicable on or after November 16, 1996.
(b) The Company shall be entitled to postpone the filing of the Shelf
Registration statement otherwise required to be prepared and filed pursuant to
this Section 2.1 no later than 10 days after receipt of the request for a Shelf
Registration from the Demanding Holders and such postponement may last for no
more than 60 days from the date notice of such postponement is given by the
-4-
<PAGE>
Company to the Demanding Holders, if the Board determines, in its good faith
judgment based on the advice of outside legal counsel, that such registration
cannot be made on registration Form S-3 of the Commission under the Securities
Act or any substantially identical successor form. If at the end of such 60-day
period the Shelf Registration cannot be made on Form S-3, the Company will file
the Shelf Registration on an available registration form.
2.2 Following receipt of a request for a Shelf Registration, the Company
shall:
(a) File the registration statement with the Commission as promptly
as practicable, and shall use the Company's best efforts to have the
registration declared effective under the Securities Act as soon as reasonably
practicable, in each instance giving due regard to the need to prepare current
financial statements, conduct due diligence and complete other actions that are
reasonably necessary to effect a registered public offering.
(b) Use the Company's best efforts to keep the relevant registration
statement Continuously Effective until the earlier of (A) such time as the
Registerable Securities registered under the Shelf Registration statement
could be disposed of pursuant to Rule 144 or any similar rule promulgated
by the Commission pursuant to the Securities Act in a single public sale or
disposition or (B) such date as of which all the Registrable Securities under
the Shelf Registration statement shall have been disposed of in the manner
described in the Registration Statement. Notwithstanding the foregoing, if for
any reason the effectiveness of a registration pursuant to this Section 2 is
suspended, the foregoing period shall be extended by the aggregate number of
days of such suspension.
2.3 The Company shall be obligated to effect no more than one Shelf
Registration. For purposes of the preceding sentence, registration shall
not be deemed to have been effected (i) unless a registration statement with
respect thereto has become effective, or (ii) if after such registration
statement has become effective, such registration or the related offer, sale or
distribution of Registrable Securities thereunder is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Selling
Holders and such interference is not thereafter eliminated. If the Company shall
have complied with its obligations under this Agreement, a right to demand a
registration pursuant to this Section 2 shall be deemed to have been satisfied
upon the earlier of (x) the date as of which all of the Registrable Securities
included therein shall have been disposed of pursuant to the Registration
Statement, and (y) the date as of which the Registerable Securities that are
subject to such Shelf Registration may be disposed of pursuant to Rule 144 or
any similar rule promulgated by the Commission pursuant to the Securities Act,
provided no stop order or similar order, or proceedings for such order, is
thereafter entered or initiated.
-5-
<PAGE>
2.4 Except as otherwise required by Section 2.1(ii), a registration
pursuant to this Section 2 shall be on registration Form S-3 of the Commission
or a substantially identical successor form.
Section 3. Piggyback Registration.
3.1 If at any time between the date hereof and November 16, 1996 the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders of the Company other than the Holders) Common
Stock under the Securities Act in connection with the public offering solely for
cash on Form S-1, S-2 or S-3 (or any replacement or successor forms), the
Company shall promptly give each Holder of Registrable Securities written notice
of such registration (a "Piggyback Registration"). Upon the written request of
each Holder given within 20 days following the date of such notice, the Company
shall cause to be included in such registration statement and use its best
efforts to be registered under the Securities Act all the Registrable Securities
that each such Holder shall have requested to be registered; provided, however,
that such right of inclusion shall not apply to any registration statement
covering an underwritten offering consisting only of convertible debt securities
and the equity securities issuable upon conversion thereof. The Company shall
have the absolute right to withdraw or cease to prepare or file any registration
statement for any offering referred to in this Section 3 without any obligation
or liability to any Holder.
3.2 If the underwriters' representative shall advise the Company in
writing (with a copy to each Selling Holder) that, in its opinion, the amount
of Registrable Securities requested to be included in such registration would
materially adversely affect such offering, or the timing thereof, then the
Company will include in such registration, to the extent of the amount and class
which the Company is so advised can be sold without such material adverse effect
in such offering: First, all securities proposed to be sold by the Company for
its own account; second, the Registrable Securities requested to be included in
such registration by Holders pursuant to this Section 3, and all other
securities being registered pursuant to the exercise of contractual rights
comparable to the rights granted in this Section 3, pro rata based on the
estimated gross proceeds from the sale thereof; and third, all other securities
requested to be included in such registration.
3.3 Each Holder shall be entitled to have its Registrable Securities
included in any Piggyback Registration pursuant to this Section 3.
Section 4. Registration Procedures. Whenever required under Section
2 or Section 3 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as practicable:
-6-
<PAGE>
4.1 Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use the Company's reasonable efforts
to cause such registration statement to become effective; provided, however,
that before filing a registration statement or prospectus or any amendments or
supplements thereto, including documents incorporated by reference after the
initial filing of the registration statement and prior to effectiveness thereof,
the Company shall furnish to one firm of counsel for all persons (other than
Company) selling Registrable Securities pursuant to such registration statement,
copies of all such documents in the form substantially as proposed to be filed
with the Commission prior to filing for review and comment by such counsel.
4.2 Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act and rules thereunder with respect to the disposition of all
securities covered by such registration statement. Pending such amendment or
supplement each such Holder shall cease making offers or Transfers of
Registerable Securities pursuant to the prior prospectus. In the event that any
Registrable Securities included in a registration statement subject to, or
required by, this Agreement remain unsold at the end of the period during which
the Company is obligated to use its best efforts to maintain the effectiveness
of such registration statement, the Company may file a post-effective amendment
to the registration statement for the purpose of removing such Securities from
registered status.
4.3 Furnish to each Selling Holder of Registrable Securities, without
charge, such numbers of copies of the registration statement, any pre-effective
or post-effective amendment thereto, the prospectus, including each preliminary
prospectus and any amendments or supplements thereto, in each case in conformity
with the requirements of the Securities Act and the rules thereunder, and such
other related documents as any such Selling Holder may reasonably request in
order to facilitate the disposition of Registrable Securities owned by such
Selling Holder.
4.4 Use the Company's reasonable efforts (i) to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such states or jurisdictions as shall be reasonably requested
by the underwriter, if any, the Majority Selling Holders, and (ii) to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of the offer and transfer of any of the Registrable
Securities in any jurisdiction, at the earliest possible moment; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
-7-
<PAGE>
4.5 Promptly notify each Selling Holder of any stop order issued or
threatened to be issued by the Commission in connection therewith (and take
all reasonable actions required to prevent the entry of such stop order or to
remove it if entered).
4.6 Make available for inspection by any Selling Holder and the
representatives of such Selling Holder (but not more than one firm of counsel
to such Selling Holders), all financial and other information as shall be
reasonably requested by them, and provide the Selling Holder, any underwriter
participating in such offering and the representatives of such Selling Holder
the reasonable opportunity to discuss the business affairs of the Company with
its principal executives and independent public accountants who have certified
the audited financial statements included in such registration statement, in
each case all as necessary to enable them to exercise their due diligence
responsibility under the Securities Act; provided, however, that information
that the Company determines, in good faith, to be confidential and which the
Company advises such Person in writing, is confidential shall not be disclosed
unless such Person signs a confidentiality agreement reasonably satisfactory to
the Company or the related Selling Holder of Registrable Securities agrees to be
responsible for such Person's breach of confidentiality on terms reasonably
satisfactory to the Company.
4.7 Use reasonable efforts to cause the Registrable Securities covered by
such registration statement, if the Common Stock is then listed on a securities
exchange or included for quotation in a recognized trading market, to continue
to be so listed or included for a reasonable period of time after the offering.
Section 5. Holders' Obligations. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this Agreement
with respect to the Registrable Securities of any Selling Holder of Registrable
Securities that such Selling Holder shall furnish to the Company such
information regarding such Selling Holder and the number of the Registrable
Securities owned by it as shall be required to effect the registration of such
Selling Holder's Registrable Securities, and to cooperate with the Company in
preparing such registration.
Section 6. Expenses of Registration. Expenses in connection with
registrations pursuant to this Agreement shall be allocated and paid as
follows:
6.1 With respect to a Shelf Registration the Company shall bear and pay all
expenses incurred in connection with such registration, filing, or qualification
of Registrable Securities with respect to such Shelf Registration for each
Selling Holder, including all registration, filing and National Association of
Securities Dealers, Inc. fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the
-8-
<PAGE>
reasonable fees and disbursements of counsel for the Company, and of the
Company's independent public accountants and the reasonable fees and
disbursements of one firm of counsel for all persons selling securities in such
registration statement (the "Registration Expenses"), but excluding underwriting
discounts and commissions relating to Registrable Securities (which shall be
paid on a pro rata basis by the Selling Holders); provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 2 if the registration is subsequently
withdrawn at the request of the Majority Selling Holders (in which case all
Selling Holders shall bear such expense), unless Holders whose Registrable
Securities constitute a majority of the Registrable Securities then outstanding
agree that such withdrawn registration shall constitute the Shelf Registration
under Section 2 hereof.
6.2 The Company shall bear and pay all Registration Expenses incurred in
connection with any Piggyback Registrations pursuant to Section 3 for each
Selling Holder (which right may be Transferred to any person to whom Registrable
Securities are Transferred as permitted by Section 10), but excluding
underwriting discounts and commissions relating to Registrable Securities (which
shall be paid on a pro rata basis by the Selling Holders of Registrable
Securities).
Section 7. Indemnification; Contribution. If any Registrable Securities
are included in a registration statement under this Agreement:
7.1 To the extent permitted by applicable law, the Company shall indemnify
and hold harmless each Selling Holder, each Person, if any, who controls such
Selling Holder within the meaning of the Securities Act, and each officer,
director, partner, and employee of such Selling Holder and such controlling
Person, against any and all losses, claims, damages, liabilities and expenses
(joint or several), including attorneys' fees and disbursements and expenses of
investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may become subject under the Securities Act, the Exchange Act or other
federal or state laws, insofar as such losses, claims, damages, liabilities and
expenses arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):
7.2 Any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein, or any amendments or supplements thereto;
(a) The omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading; or
-9-
<PAGE>
(b) Any violation or alleged violation by the Company of the Securities
Act, the Exchange Act, any applicable state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any
applicable state securities law;
provided, however, that the indemnification required by this Section 7.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or expense to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished to the Company by the indemnified party expressly for use in
connection with such registration; provided, further, that the indemnity
agreement contained in this Section 7 shall not apply to any underwriter to the
extent that any such loss is based on or arises out of an untrue statement or
alleged untrue statement of a material fact, or an omission or alleged omission
to state a material fact, contained in or omitted from any preliminary
prospectus if the final prospectus shall correct such untrue statement or
alleged untrue statement, or such omission or alleged omission, and a copy of
the final prospectus has not been sent or given to such person at or prior to
the confirmation of sale to such person if such underwriter was under an
obligation to deliver such final prospectus and failed to do so. The Company
shall also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers, directors, agents and employees and each person who controls such
persons (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Selling Holders.
7.3 To the extent permitted by applicable law, each Selling Holder shall
indemnify and hold harmless the Company, each of its directors, each of its
officers who shall have signed the registration statement, each Person, if any,
who controls the Company within the meaning of the Securities Act, any other
Selling Holder, any controlling Person of any such other Selling Holder and each
officer, director, partner, and employee of such other Selling Holder and such
controlling Person, against any and all losses, claims, damages, liabilities and
expenses (joint and several), including attorneys' fees and disbursements and
expenses of investigation, incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation, or to which any of the
foregoing Persons may otherwise become subject under the Securities Act, the
Exchange Act or other federal or state laws, insofar as such losses, claims,
damages, liabilities and expenses arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Selling Holder expressly for use in connection with such
-10-
<PAGE>
registration; provided, however, that (x) the indemnification required by this
Section 7.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or expense if settlement is effected without the
consent of the relevant Selling Holder of Registrable Securities, which consent
shall not be unreasonably withheld, and (y) in no event shall the amount of any
indemnity under this Section 7.2 exceed the gross proceeds from the applicable
offering received by such Selling Holder.
7.4 Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, suit, proceeding, investigation or
threat thereof made in writing for which such indemnified party may make a claim
under this Section 7, such indemnified party shall deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and disbursements and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time following the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7 but shall not relieve the indemnifying
party of any liability that it may have to any indemnified party otherwise than
pursuant to this Section 7. Any fees and expenses incurred by the indemnified
party (including any fees and expenses incurred in connection with investigating
or preparing to defend such action or proceeding) shall be paid to the
indemnified party, as incurred, within thirty (30) days of written notice
thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder). Any such indemnified party shall have the right to employ separate
counsel in any such action, claim or proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be the expenses
of such indemnified party unless (i) the indemnifying party has agreed to pay
such fees and expenses or (ii) the indemnifying party shall have failed to
promptly assume the defense of such action, claim or proceeding or (iii) the
named parties to any such action, claim or proceeding (including any impleaded
parties) include both such indemnified party and the indemnifying party, and
such indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or in addition
to those available to the indemnifying party and that the assertion of such
defenses would create a conflict of interest such that counsel employed by the
indemnifying party could not
-11-
<PAGE>
faithfully represent the indemnified party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action, claim or
proceeding on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action,
claim or proceeding or separate but substantially similar or related actions,
claims or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties, unless in the reasonable
judgment of such indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
action, claim or proceeding, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels).
No indemnifying party shall be liable to an indemnified party for any settlement
of any action, proceeding or claim without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
7.5 If the indemnification required by this Section 7 from the indemnifying
party is unavailable to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses referred to in this Section 7:
(a) The indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any Violation has been committed by, or relates to information supplied
by, such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such Violation. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 7.1 and Section 7.2,
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
(b) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.4 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in Section 7.4(i). No Person guilty of
-12-
<PAGE>
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
7.6 If indemnification is available under this Section 7, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
this Section 7 without regard to the relative fault of such indemnifying party
or indemnified party or any other equitable consideration referred to in Section
7.4.
7.7 The obligations of the Company and the Selling Holders of Registrable
Securities under this Section 7 shall survive the completion of any offering of
Registrable Securities pursuant to a registration statement under this
Agreement, and otherwise.
Section 8. Holdback. Each Holder entitled pursuant to this Agreement to
have Registrable Securities included in a Piggyback Registration prepared
pursuant to this Agreement, if so requested by the managing underwriter in
connection with an offering of any securities covered by a registration
statement filed by Company because the managing underwriter reasonably believes
that sales of such shares of Common Stock would have a detrimental effect on
such offering, shall not effect any public sale or distribution of shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for shares of Common Stock (except as part of such underwritten registration),
during the 15-day period prior to, and during the 90-day period beginning on,
the date such registration statement is declared effective under the Securities
Act by the Commission, provided that such Holder is timely notified of such
effective date in writing by the Company or such underwriter and provided,
further, that the right to require the Holders to refrain from selling or
distributing securities pursuant to this Section 8 shall be exercisable with
respect to only one offering of securities by the Company during the term of
this Agreement. In order to enforce the foregoing covenant, the Company shall be
entitled to impose stop-transfer instructions with respect to the Registrable
Securities of each Holder until the end of such period.
Section 9. Amendment, Modification and Waivers; Further Assurances.
(a) This Agreement may be amended with the consent of the Company and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent of Holders owning Registrable Securities possessing a majority
in number of the Registrable Securities then outstanding to such amendment,
action or omission to act.
(b) No waiver of any terms or conditions of this Agreement shall operate as
a waiver of any other breach of such terms and conditions or any other term or
condition, nor shall any
-13-
<PAGE>
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. No written waiver hereunder, unless it by its own
terms explicitly provides to the contrary, shall be construed to effect a
continuing waiver of the provisions being waived and no such waiver in any
instance shall constitute a waiver in any other instance or for any other
purpose or impair the right of the party against whom such waiver is claimed in
all other instances or for all other purposes to require full compliance with
such provision.
(c) Each of the parties hereto shall execute all such further instruments
and documents and take all such further action as any other party hereto may
reasonably require in order to effectuate the terms and purposes of this
Agreement.
Section 10. Assignment; Benefit. This Agreement and all of the provisions
hereof shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, assigns, executors, administrators or
successors; provided, however, that except as specifically provided herein with
respect to certain matters, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or delegated by a Holder to
any person who purchases such Registrable Securities from the Holder, unless
such transferee is an "affiliate" of the Company within the meaning of Rule
144(a)(1) adopted by the Commission pursuant to the Securities Act.
Section 11. Miscellaneous.
11.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
11.2 Notices. All notices and requests given pursuant to this Agreement
shall be in writing and shall be made by hand-delivery, first-class mail
(registered or certified, return receipt requested), confirmed facsimile or
overnight air courier guaranteeing next business day delivery to the relevant
address specified on Schedule 1 to this Agreement. Except as otherwise provided
in this Agreement, the date of each such notice and request shall be deemed to
be, and the date on which each such notice and request shall be deemed given
shall be: at the time delivered, if personally delivered or mailed; when receipt
is acknowledged, if sent by facsimile; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next
business day delivery.
11.3 Entire Agreement; Integration. This Agreement supersedes all prior
agreements between or among any of the parties hereto with respect to the
subject matter contained herein and therein, and such agreements embody the
entire understanding among the parties relating to such subject matter.
-14-
<PAGE>
11.4 Injunctive Relief. Each of the parties hereto acknowledges that in the
event of a breach by any of them of any material provision of this Agreement,
the aggrieved party may be without an adequate remedy at law. Each of the
parties therefore agrees that in the event of such a breach hereof the aggrieved
party may elect to institute and prosecute proceedings in any court of competent
jurisdiction to enforce specific performance or to enjoin the continuing breach
hereof. By seeking or obtaining any such relief, the aggrieved party shall not
be precluded from seeking or obtaining any other relief to which it may be
entitled.
11.5 Section Headings. Section headings are for convenience of reference
only and shall not affect the meaning of any provision of this Agreement.
11.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one and the same instrument. All signatures need not be on
the same counterpart.
11.7 Severability. If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
and enforceability of the remaining provisions of this Agreement, unless the
result thereof would be unreasonable, in which case the parties hereto shall
negotiate in good faith as to appropriate amendments hereto.
11.8 Filing. A copy of this Agreement and of all amendments thereto shall
be filed at the principal executive office of the Company with the corporate
recorder of the Company.
11.9 Termination. This Agreement may be terminated at any time by a written
instrument signed by the parties hereto. Unless sooner terminated in accordance
with the preceding sentence, this Agreement (other than Section 7 hereof) shall
terminate in its entirety on such date as there shall be no Registrable
Securities outstanding, provided that any shares of Common Stock previously
subject to this Agreement shall not be Registrable Securities following the sale
of any such shares in an offering registered pursuant to this Agreement.
11.10 Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees (including any fees incurred in any appeal) in addition to its
costs and expenses and any other available remedy.
11.11 No Third Party Beneficiaries. Nothing herein expressed or implied is
intended to confer upon any person, other than the parties hereto or their
respective permitted assigns, successors, heirs and legal representatives, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
-15-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first written above.
FIRST COMMONWEALTH, INC.
By: /s/ Christopher C. Multhauf
-----------------------------
Christolpher C. Multhauf
Chairman and Chief Executive
Officer
/s/ Jesley C. Ruff
---------------------------------
Jesley C. Ruff
/s/ Robert Chojnacki
---------------------------------
Robert Chojnacki
/s/ David H. Erickson
---------------------------------
David H. Erickson
/s/ Stephen F. Froehlich
---------------------------------
Stephen F. Froehlich
/s/ Gerald D. Patterson
---------------------------------
Gerald D. Patterson
/s/ Don A. Dieke
---------------------------------
Don A. Deike
/s/ John Sebanc
---------------------------------
John Sebanc
ANN SEBANC TRUST
By: /s/ Ann Sebanc
----------------------------
Ann Sebanc, Trustee
-16-
<PAGE>
Schedule 1
----------
Jesley C. Ruff
4856 N. Ardmore Avenue
Milwaukee, WI 53217
Robert Chojnacki
S64 W12720 Tennyson
Muskego, WI 53150
David H. Erickson
857 E. Glenbrook Road
Milwaukee, WI 53217
Stephen F. Froehlich
W51 N893 Keup Road
Cedarburg, WI 53012
Gerald D. Patterson
2867 Nassau Drive
Brookfield, WI 53005
Don A. Deike
644 N. Highway K
Hartford, WI 53027
John Sebanc
303 W. Coventry Court
Apt. #119
Glendale, WI 53217
Ann Sebanc Trust
400 West Acacia Road
Glendale, WI 53217
-17-
<PAGE>
EXHIBIT 99.2
SMILEAGE DENTAL SERVICES, INC.
WISCONSIN DENTAL PROVIDER NETWORK AGREEMENT
-------------------------------------------
THIS AGREEMENT is made this 18th day of July 1996 by and between SMILEAGE
DENTAL SERVICES, INC., a Wisconsin corporation (hereinafter referred to as
"SDS"), and SMILEAGE DENTAL CARE, INC., a Wisconsin corporation (hereinafter
referred to as "SDC").
WITNESSETH
WHEREAS, SDS arranges for dental services for dental insurers, including First
Commonwealth Limited Health Service Corporation;
WHEREAS, SDS contracts with independent dental practices and dental networks for
the provision of dental care services under the laws of the State of Wisconsin;
WHEREAS, SDC is a provider network that contracts on behalf of dentists for the
provision of dental services;
WHEREAS, SDS and SDC are willing to enter into this Agreement through which SDC
will make its network of Dentists available to those dental insurers for whom
SDS arranges for dental and related services upon the terms and conditions
herein contained;
NOW, THEREFORE, in consideration of the premises and the mutual terms, covenants
and conditions hereinafter set forth, the receipt and sufficiency of which are
hereby acknowledged, the parties mutually agree as follows:
ARTICLE I - DEFINITIONS
1.1 DENTIST: shall mean an individual dentist, dental partnership, or
professional corporation, duly licensed to practice dentistry by the Board of
Dental Examiners, State of Wisconsin.
1.2 DENTAL DIRECTOR: shall mean the dentist appointed by SDS to promulgate and
maintain professional standards for the Dentists contracting with SDS.
1.3 DENTAL SERVICE AGREEMENT: shall mean the agreement between an Insurer and a
Subscribing Group for dental services, or in the case of an individual, the
agreement between a Subscriber and an Insurer.
1.4 EMERGENCY DENTAL SERVICES: shall mean those services required for
alleviation of severe pain, or immediate diagnosis and treatment of unforeseen
dental conditions which, if not treated, would jeopardize or impair the dental
health of the Member.
1.5 HIGH BENEFIT PLAN GROUPS: shall mean those Subscribing Groups set forth on
Exhibit E to this agreement.
1.6 INSURER: shall mean any dental insurer on whose behalf SDS arranges for
dental services.
1.7 MEMBER: shall mean the Subscriber and all enrolled eligible dependents.
Page 1
<PAGE>
1.8 PREPAID DENTAL INSURER: shall mean any arrangement under which the
Dentist, dental network, or other dental provider is compensated on a capitated
basis for dental services performed.
1.9 SDC DENTISTS: shall mean those Dentists who are affiliated with SDC, and on
whose behalf SDC contracts.
1.10 SUBSCRIBING GROUP: shall mean the organization or firm (including limited
service health organizations, insurance companies, fraternal benefit societies,
self insuring employers, or health and welfare trusts) contracting with an
Insurer to arrange to provide dental care services for its employees, associates
and or beneficiaries.
1.11 SUBSCRIBER/BENEFICIARY: shall mean an individual who meets the eligibility
requirements of the Subscribing Group, who has made an application, and whose
prepayment fees have been paid through the Subscribing Group for the services
and benefits stated therein, or in the case of individual coverage, the
individual who has made application and whose prepayment fees are paid for the
services and benefit stated therein.
1.12 WDG: shall mean Wisconsin Dental Group, S.C., a Wisconsin service
corporation, and any successor entity thereto.
ARTICLE II - RELATIONSHIP OF PARTIES
2.1 BASIC RELATIONSHIP: SDS and SDC are separate and independent entities. SDC
shall render services under this Agreement as an independent contractor. As
independent contracting parties, SDS and SDC maintain separate and independent
management, and each has full unrestricted authority and responsibility
regarding its own organization and structure. Nothing contained herein shall be
deemed or construed to make SDC, or any of SDC's employees, subcontractors or
other persons acting under its direction or control, an agent, employee,
servant, partner, or joint venturer of or with SDS.
2.2 OTHER SDS SPONSORED PROGRAMS: SDS is authorized to act as SDC's exclusive
agent and representative in negotiating SDC's participation in additional dental
care programs administered by, managed by, or affiliated with SDS. SDC agrees
to participate in such dental care programs and to execute additional contracts
required by such programs, so long as such programs and contracts contain
substantially the same terms and conditions set forth in this Agreement.
2.3 RIGHT OF FIRST REFUSAL. For a period of twenty-four (24) months from the
Effective Date of this Agreement, SDS shall provide to SDC a right of first
refusal to develop staff model dental offices in areas of interest to SDS.
2.4 RESTRICTIVE COVENANT. SDS and SDC agree that:
2.4.1 Within the State of Wisconsin, SDC shall not operate, and shall
cause WDG not to operate, as a Prepaid Dental Insurer plan, except
as set forth in Exhibit C to this Agreement.
2.4.2 For two years from the Effective Date of this Agreement, SDC shall
not, and shall cause WDG not to, add more than fifteen additional
Dentists to its independent practice network within the Milwaukee
Counties Area and no more than twenty additional Dentists to its
independent practice network within the Non-Milwaukee Counties Area.
For purposes of this Section, the following definitions shall apply:
counties of Milwaukee, Waukesha, Washington, Ozaukee, Racine,
Kenosha ("Milwaukee Counties Area"), and Brown, Dane, Outagamie, and
Winnebago ("Non-Milwaukee Counties Area"). SDC may, however, acquire
any dental practice at any time without limitation.
2.4.3 For the term of this Agreement, SDC shall not, and shall cause WDG
not to, contract directly with any of the parties set forth in
Exhibit D to this Agreement except through SDS.
2.4.4 For six months from the Effective Date of this Agreement, SDC shall
not, and shall cause WDG not to, contract with any Prepaid Dental
Insurer except through SDS, and SDC shall prohibit, and shall cause
WDG to prohibit, their respective provider staff model dental
centers, including contracted specialty services, from contracting
with any Prepaid Dental Insurer except through SDS.
Page 2
<PAGE>
Notwithstanding the foregoing sentence, SDC and its provider staff
model dental centers may contract with those existing prepaid
insurance clients set forth in Exhibit G. Likewise, any dental
practices purchased by SDC which have existing contracts with
prepaid dental insurers are exempt from this clause.
2.4.5 Unless SDS consents in writing, for thirty-six months from the
Effective Date of this Agreement, SDC will not, and shall cause WDG
not to, provide care to the Members of Subscribing Groups set forth
in Exhibit E to this Agreement through any Prepaid Dental Insurer
except SDS or its affiliates. However, SDC may provide dental
services to the Subscribing Groups set forth in Exhibit E when such
dental services are bundled with the medical plan of Exhibit F
client's medical plan. For purposes of this section 2.4.5, "bundled"
shall mean that dental benefits are provided only to those Members
that elect the service contract client's medical benefit option.
2.4.6 Unless the parties otherwise agree, covered services for High
Benefit Plan Groups will be provided exclusively through SDC for a
period of thirty-six months from the Effective Date of this
Agreement. During that period, SDC shall provide SDS with "most
favored nation" pricing for the High Benefit Plan Groups. SDC
covenants and agrees that SDC shall provide a level of service and
accessibility to the High Benefit Plan Groups for the exclusive
thirty-six month period comparable to the levels of service and
accessibility as of the Effective Date. SDC covenants and agrees
that such service and accessibility shall include the minimum
Member/full-time equivalent dentist ratio at each SDC geographic
location set forth in Exhibit H to this Agreement.
2.4.7 If any period of time or the geographical or other scope of this
restrictive covenant contained in this Section 2.4 is adjudged
unreasonable in any court proceeding, then the period of time and/or
the scope, as applicable, shall be modified as is deemed necessary
to allow this covenant to be enforced during such period of time and
within such geographical area as is determined to be reasonable.
2.5 Independent Dentists. SDS and SDC recognize and agree that SDS or an
affiliate of SDS may contract directly (through employment agreements,
independent contractor agreements, or otherwise) with any Dentist who is a
member of SDC's provider network or is otherwise contractually affiliated with
SDC.
ARTICLE III - DUTIES OF DENTAL PROVIDER
3.1 ON BEHALF OF ITSELF AND SDC DENTISTS, SDC AGREES:
A. SDC Dentists shall provide to Members those dental care services specified
in Exhibit A for all Members selecting or assigned to SDC, subject to any
exclusions or limitations. Except as otherwise provided in this Agreement, SDC
agrees that SDC Dentists shall provide dental services under the benefit plans
specified in Exhibit A at SDS's standard general dentistry and specialty
compensation levels set forth in Exhibit B. For a period of thirty-six months
from the Effective Date of this Agreement, SDC Dentists shall be paid the
capitation percentage rate in effect on the Effective Date of this Agreement for
services rendered to those groups set forth on Exhibit D.
B. SDC Dentists shall refer Members for appropriate specialty care, where
needed, and not provided by SDC as set forth in Exhibit A. Any such referrals
for specialty care must be authorized in advance by Dental Director or his
designee in accordance with SDS policy.
C. SDC Dentists shall provide twenty-four (24) hour emergency services at all
times.
D. SDC and SDC Dentists shall conduct their relationships with SDS, Insurers,
and their subscribing groups and their Members in a professional and positive
manner, and not make untruthful or otherwise disparaging statements regarding
relationship with SDS, Insurers, Insurers' Members or Insurers' or SDS's
business, nor conduct SDC in any fashion that could be detrimental to the
business of SDS.
E. SDC and SDC Dentists shall accept the monthly payments made by SDS to SDC
Dentists and copayments made by Members to SDC Dentists in accordance with
Exhibit A as payment in full for all services rendered.
F. SDC and SDC Dentists shall administer the Coordination of Benefits (COB)
provisions of all Dental Service Agreements so that the maximum benefit of the
primary and secondary insurance coverages is realized in accordance with the COB
provisions of said Dental Service Agreements, and to account to SDS for any
amounts so received in excess of
Page 3
<PAGE>
the capitation fee. SDS shall, at its option, have the right to develop
procedures for such administration of COB and inspect records for such COB
accounting.
3.2 DISCRIMINATION. SDC shall not, and shall cause SDC Dentists not to,
differentiate or discriminate in the treatment of its patients by reason of the
fact that certain of those patients are Members. SDC shall cause SDC Dentists
to render dental services to Members in the same manner, in accordance with the
same standards, and with the same time availability as offered its other
patients.
3.3 ADMINISTRATIVE. To enable SDS to implement appropriate quality assessment
programs and to comply with the provisions of all applicable state statutes,
rules and regulations, SDC shall:
A. Cooperate, and cause SDC Dentists to cooperate, with SDS in maintaining and
providing such dental, financial, administrative and other records relating to a
Member as may be requested by SDS. When provided to SDS, these records shall be
maintained in the confidential nature they had while in the possession of SDC;
and
B. Cooperate and participate, and cause SDC Dentists to cooperate and
participate, with SDS's quality assessment, peer review and audit systems,
service standards and grievance procedures. SDC shall comply, and shall cause
all SDC Dentists to comply, with all final determinations rendered by the peer
review process or grievance procedure established by SDS.
3.4 CONFIDENTIALITY. Health records (including dental records) of Members
shall be treated as confidential in order to comply with all federal and state
laws and regulations regarding the confidentiality of patient records. SDC
agrees to maintain, and to cause SDC Dentists to maintain, the confidentiality
of Members' records and enrollment information, and prevent unauthorized
disclosure of such records and information.
3.5 DENTAL AUDIT. SDC agrees to permit, and to cause SDC Dentists to permit,
inspection and audit of dental records of SDS Members by SDS and authorized
authorities of the State of Wisconsin, and to comply with requirements issued as
a result of such inspection or audit.
3.6 REVIEW. SDC agrees to participate and cooperate, and to cause SDC Dentists
to participate and cooperate, in the professional review process of SDS and to
comply with resulting requirements.
3.7 UTILIZATION AND SPECIALTY REFERRALS. SDC agrees to submit utilization
reports as required by SDS and to comply with all requirements of SDS's
specialty care referral system.
3.8 COMPLAINT AND GRIEVANCE PROCEDURE. SDC shall institute procedures
satisfactory to SDS to record and report any Grievance by any Member to SDS and
shall fully and timely cooperate with SDS with respect to any Complaint or
Grievance procedure established by SDS or required by law. SDC shall provide
SDS with a copy of any Complaint or Grievance within two (2) business days of
any SDC Dentist's receipt of such Complaint or Grievance, or in the case of
Urgent Care Situations, immediately upon receipt.
For the purpose of this provision,
(a) the term "Complaint" means any dissatisfaction expressed by a Member
about FCW, Dentist, or the dental care services provided;
(b) the term "Grievance" means any unresolved dissatisfaction or complaint
about the benefits, dental care services provided, Dental Services Agreement, or
the relationship between the SDC Dentist and the Member.
3.9 QUALITY ASSESSMENT. SDC agrees to comply, and to cause SDC Dentists to
comply, with SDS's Quality Assessment Program as adopted by SDS from time to
time.
3.10 INSPECTION. SDC agrees to allow inspection, during normal business hours,
of financial books and records to the extent of its dealings with SDS under this
contract by, and authorized authorities of the State of Wisconsin.
Page 4
<PAGE>
ARTICLE IV - SDC REPRESENTATIONS AND WARRANTIES
4.1 LICENSURE. Each of the Dentists affiliated with SDC is currently licensed
to practice dentistry in the State of Wisconsin. Each of the Dentists
affiliated with SDC will maintain all licenses and certifications required under
state and federal law for Dentists rendering the type of services each such
Dentist provides.
4.2 ACCURACY OF APPLICATION iNFORMATION. SDC will use best efforts to ensure
that all of the information provided by each of the Dentists affiliated with SDC
on the SDS application is true and complete. SDC understands and agrees that
all of SDS's obligations under this Agreement are entered into in reliance upon
the truth of the information and representations contained in each of the SDC
Dentist's application. After notice and an opportunity to cure pursuant to
Section 9.2(D), SDS shall have the right to terminate this Agreement in the
event that said information or representations are discovered to be untruthful
or incomplete, or that any of the Dentists affiliated with SDC has made a
material omission in Dentist's application or other representations to SDS.
4.3 UPDATES OF MATERIAL CHANGES. SDC will ensure that each of the SDC Dentists
continuously updates the application information provided to SDS to reflect any
material change. In particular, SDC shall notify SDS within five business days
in the event of any of the following:
(a) any action is taken to restrict any SDC Dentist's licensure to
provide covered dental care services;
(b) any disciplinary action taken against any SDC Dentist by any peer
review body or any regulatory, licensing or accreditation agency
or body;
(c) the initiation of any action or any settlement, trial verdict, or
other final disposition of any suit brought or claim made against
SDC or any SDC Dentist for malpractice; or
(d) the insolvency or the filing of a petition in bankruptcy or of
receivership of SDC or of any Dentist affiliated with SDC.
ARTICLE V - INDIVIDUAL DENTISTS
5.1 INDIVIDUAL DENTIST COMPLIANCE WITH AGREEMENT. SDC shall ensure that each
individual Dentist affiliated with SDC complies with all of the terms of this
Agreement. SDS shall include all Dentists affiliated with SDC in any agreements
that SDS enters into on behalf of SDC unless SDS receives the express written
consent of SDC to exclude one or more Dentists affiliated with SDC from any such
agreement. SDS Services Agreements shall include all of the Dentists affiliated
with SDC unless both SDC and SDS mutually agree in writing to arrangements which
include a designated subset of the Dentists affiliated with SDC.
5.2 TERMINATION OF INDIVIDUAL DENTISTS. In the event that SDS decides to
terminate an individual SDC Dentist as part of SDS's credentialing, utilization
review, quality assessment or other reviews, such termination shall not
terminate the Agreement with SDC, provided that SDC provides SDS with adequate
assurances that (1) the terminated Dentist will not provide any further services
under this Agreement; and (2) SDC can provide all necessary services, including
emergency coverage, without the services of the excluded individual Dentist.
5.3 CHANGE IN MEMBERSHIP OF SDC. SDC represents and warrants that SDC will
inform SDS in writing of any change in the Dentists who are affiliated with SDC
(i.e., a Dentist leaves SDC or a new Dentist joins SDC) within ten business days
of such change.
5.4 AUTHORITY TO BIND SDC. The person signing this Agreement on behalf of SDC
represents and warrants that such person is duly authorized and empowered to
enter into this Agreement on behalf of SDC and all SDC Dentists. Any Dentist
that bills for services under SDC's tax identification or other billing number
shall be bound by all of the terms and conditions of this Agreement.
Page 5
<PAGE>
ARTICLE VI - SELECTION OF DENTIST
6.1 Selection. At the time of enrollment, all Members are requested to select
a Dentist who will provide or arrange for the provision of all covered dental
services. SDS agrees to list the SDC Dentists as authorized Dentists of SDS in
its materials to members, and SDC hereby agrees to allow SDS to so list them.
6.2 Acceptance of Members. SDC agrees to accept all Members referred by SDS.
SDC may notify SDS that an SDC Dentist's office is full, with 90 days advance
written notice.
6.3 Patient Relationship. SDC shall be solely responsible for all dental
advice and services rendered to a Member. SDC shall maintain a dentist-patient
relationship, without any interference by SDS whatsoever, with each Member
registered with an SDC Dentist's practice.
6.4 Transfer of Patients. Because the dentist-patient relationship is personal
and may become unacceptable to either party, Member or SDC may request in
writing to SDS that the Member be transferred to another Dentist. Where
practical, such transfer will be made.
ARTICLE VII - QUALITY ASSESSMENT
7.1 Standards. SDC agrees to cause each SDC Dentist to perform services to
Members with the same standards of care, skill and diligence that are
customarily used by such SDC Dentist for all his patients and used by Dentists
located in the community where such services are rendered and in accordance with
the policies and procedures established by the SDS Dental Director from time to
time.
7.2 Quality Assessment. SDS, in consultation with its Dental Director, shall
develop, implement and maintain, through its Quality Assessment program,
policies and procedures and service standards. SDC shall be bound by and comply
with, and cause SDC Dentists to be bound by and comply with, such policies and
procedures and service standards.
ARTICLE VIII - COMPENSATION
8.1 Eligible Members. SDS shall determine each Member who is eligible to
receive from SDC the dental services set forth in Exhibit A of this agreement.
SDS will notify SDC of Members' eligibility. SDS will provide SDC with a contact
at SDS for verification of Members' eligibility.
8.2 Fees. In exchange for the provisions of services to such Members, SDS
shall pay the SDC Dentists the amounts shown on Exhibit B attached. Such
payments shall be made directly to the SDC Dentists. SDC hereby agrees and
warrants on behalf of itself and SDC Dentists that in no event, including, but
not limited to non-payment by SDS, SDS insolvency or breach of this Agreement,
shall any SDC Dentist bill, charge, collect a deposit from, seek compensation,
remuneration or reimbursement from, or have any recourse against Subscribing
Group, Subscriber, Member or persons other than SDS acting on their behalf for
services provided pursuant to this Agreement. This provision shall not prohibit
collection of supplemental charges or copayments on SDS's behalf made in
accordance with the terms of the Dental Service Agreement between SDS and
Subscriber/Member. SDC further agrees that (1) this Section 8.2 shall survive
the termination of this Agreement regardless of the cause giving rise to
termination and shall be construed to be for the benefit of the SDS
Subscriber/Member, and that (2) this provision supersedes any oral or written
contrary agreement now existing or hereafter entered into between SDC and
Subscribing Group, Subscriber, Member or persons acting on their behalf.
Any modifications, addition, or deletion to the provisions of this Section 8.2
shall become effective on a date no earlier than 15 days after the Office of the
Commissioner of Insurance has received written notice of such proposed changes.
Page 6
<PAGE>
8.3 Payment. Payments to SDC Dentists shall be made monthly for each eligible
Member who has selected a SDC Dentist participating with SDS. Such payments will
include any adjustments to prior months' payments based upon eligibility
adjustments received by SDS from Subscriber Groups.
8.4 Participation in Additional Plans. SDS may, from time to time, amend,
delete or add to its various Dental Service Agreements. In such an event, SDS
shall send SDC Amended Exhibits A and B to reflect those amendments, deletions
or additions at the address in Section 13.1B. If SDC does not notify SDS in
writing of any objections to such changes, by registered or certified mail at
the address in Section 13.1A within 3 days of its receipt of such notification
from SDS, those changes shall become part of this Agreement.
ARTICLE IX - TERM AND TERMINATION OF AGREEMENT
9.1 Term. The effective date of this Agreement shall be the date first written
above and have an initial term of 5 years ("Initial Term"). This Agreement
shall continue in effect from year-to-year thereafter upon each and all of the
terms and conditions herein contained, unless and until terminated as
hereinafter provided.
9.2 Termination.
A. After the Initial Term, this Agreement may be terminated without cause by
either party by written notice sent by registered or certified mail at least 180
days in advance of the proposed termination date.
B. This Agreement shall immediately terminate upon the occurrence of the
violation of or failure to comply with any material provision of the Agreement
by any SDC Dentist, if such SDC fails to take appropriate action against such
SDC Dentist within 15 days after receipt of written notice thereof from SDS.
C. SDS may immediately terminate this Agreement if the SDC fails to abide by
SDS's Quality Assessment program, Exhibit I or any of the provisions of SDS's
policies and procedures, and fails to cure such failure within 15 days after
receipt of written notice thereof from SDS if such failure could result in
imminent harm to a patient or within 60 days after receipt of written notice
thereof from SDS if such failure poses no danger of imminent harm to a patient.
D. Either party may terminate this Agreement immediately upon the material
breach of the Agreement by the other party, if the breaching party fails to cure
the breach within 60 days after receipt of written notice thereof.
E. This Agreement may be terminated at any time upon the mutual agreement of
the parties hereto.
9.3 Effect Of Termination.
A. Notwithstanding any other provision in this contract, any termination of
this Agreement shall have no effect upon the rights and obligations of the
parties arising out of any transactions occurring prior to the effective date of
such termination and any continuing obligations after termination as set forth
herein.
B. In the event of the termination of this Agreement, SDC shall complete work
started prior to the termination date as follows:
(1) If an impression has been taken, SDC will complete a partial or denture.
(2) On every tooth upon which work has been started, SDC will complete the
procedure.
C. In the event of termination of this Agreement, SDC agrees to forward to the
Member's newly assigned Dentist, at the request of the Member or newly assigned
Dentist, a certified copy or duplication of all patient records and X-rays
within 30 days after such request.
The reasonable cost of copying and/or duplicating patient records and x-rays
shall be the responsibility of:
a) SDS, if this Agreement is terminated by SDS, or at any time during
this Agreement a Member requests to transfer his or her patient record
to another Dentist; or
b) SDC, if this Agreement is terminated by SDC.
SDC further agrees to return all SDS materials to SDS, including the Provider
Manual, upon SDS's request.
D. In the event of termination of this Agreement for any reason, SDC shall be
paid the last monthly capitation payment as specified in this Agreement 60 days
following the effective date of termination of this Agreement. SDS shall be
entitled to make any adjustments in such final capitation payments as may be
necessary as determined by SDS.
Page 7
<PAGE>
ARTICLE X - INSURANCE
10.1 Insurance. SDC shall cause each of the SDC Dentists to secure and
maintain such policies of professional and general liability insurance as shall
be necessary to insure Dentist and Dentist's employees and other persons acting
under his direction and control, against any liability, claim or claims for
damages arising by reason of injury or death, occasioned directly or indirectly,
in connection with the performance or nonperformance of any service by Dentist,
Dentists' employees or other persons acting under his direction and control,
under this Agreement. The limits, types of coverage, form and issuer of each
such insurance coverage shall be subject to the approval of SDS, but the
professional liability coverage shall have limits that are in no event less than
one million dollars per occurrence and three million dollars aggregate for WDG
dentists or less than one hundred thousand dollars per occurrence and three
hundred thousand dollars aggregate for other SDC Dentists.
10.2 Evidence of Insurance. SDC shall deliver to SDS satisfactory evidence of
such insurance coverage and shall further notify SDS immediately of any and all
substantial changes in or cancellation of said insurance coverage.
ARTICLE XI - GENERAL PROVISIONS
11.1 Waiver. The waiver by either party to this Agreement of any breach of any
provision hereof on the part of the other shall not be construed to operate as a
waiver of any other or subsequent breach of the same or any other term, condi-
tion or covenant contained in this Agreement.
11.2 Entire Agreement. This agreement represents the entire understanding
between the parties and supersedes any prior agreements or understandings with
respect to the subject matter hereof. All amendments or modifications hereto
shall be mutually agreed to in writing by SDS and SDC, except as specified in
Section 8.4.
11.3 Invalidity. The invalidity or unenforceability of any terms or provision
of the Agreement shall in no way affect the validity or enforceability of any
other term or provision.
11.4 Assignment. This Agreement shall not be assigned in whole or in part
without the written consent of SDS which consent shall be in SDS's sole
discretion.
11.5 Terms. For simplicity of expression, pronouns and other terms are
sometimes expressed in one number and gender, but where appropriate to the
context these terms shall be deemed to include each of the other numbers and
genders.
11.6 Headings. The underlined headings are for convenience and shall not
affect interpretation.
11.7 Governing Law. This Agreement is governed by and shall be construed
according to Wisconsin law, without reference to the conflicts of laws
provisions of that state.
11.8 Financial Records. SDC and SDS shall cooperate in keeping financial and
statistical records which may be necessary for the proper administration of SDS
or as required by state or federal laws and regulations. Such records shall be
retained for a period of 5 years. Such obligations shall not terminate upon
termination of this Agreement whether by rescission or otherwise.
11.9 Surcharges. Neither SDC nor any SDC Dentist is permitted to surcharge
any member for covered services and shall, whenever a surcharge has erroneously
occurred, upon notice by that member or SDS, refund such charge within 5 days.
11.10 Services After Termination. Upon termination of this agreement, SDS
shall be liable for covered services rendered by SDC Dentists (other than for
copayments) to Members who retain eligibility in SDS or by operation of law who
are under the care of an SDC Dentist at the time of such termination until
completion of services being rendered by
page 8
<PAGE>
SDC unless SDS makes reasonable and dentally appropriate provisions for the
assumption of such services by another contracting Dentist. SDC shall request
prior approval of SDS to perform any such services above.
11.11 Patient Records. SDC Dentists shall maintain up-to-date records in
accordance with accepted professional standards, sound dental accounting
procedures and sound internal practices. Said records shall reflect the date
each Member was seen, the procedures followed, dentist to whom he was referred.
Such records shall be made available for inspection by SDS during regular
business hours and other reasonable time. SDS shall from time to time provide
forms for keeping certain records, which shall be submitted to SDS as requested
by SDS.
11.12 Non-Solicitation. SDC agrees that, during the term of this Agreement and
for a one-year period following termination of this Agreement, SDC shall not
solicit or otherwise approach then current Members or subscriber groups of SDS
to become members in a prepaid dental plan, preferred provider organization or
other entity directly competitive with the business of SDS.
11.13 Exhibits. The following shall be exhibits to this Agreement:
Exhibit A Benefit Plans
Exhibit B Compensation
Exhibit C SDI Accounts Not Reinsured by First Commonwealth Limited
Health Service Corporation
Exhibit D SDI Accounts Reinsured by First Commonwealth Limited Health
Service Corporation
Exhibit E SDI Accounts Reinsured by First Commonwealth Limited Health
Service Corporation With The High Benefit Plan
Exhibit F SDC Service Contract Clients
Exhibit G Existing Prepaid Insurance Clients
Exhibit H Current FTE/Geographic Location
Exhibit I Quality Assessment Program
ARTICLE XII - ARBITRATION
12.1 Arbitration. If any dispute or controversy shall arise among the parties
hereto with respect to the making of, construction of, the terms of, or
interpretation of this Agreement or the rights of any party hereto or with
respect to any transaction involved, the dispute or controversy shall be settled
by arbitration before one arbitrator, selected from the panels of arbitrators of
the American Arbitration Association, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, a judgement upon the
award entered in any court having jurisdiction thereof. Arbitration shall be
initiated by written notice to the parties as set forth in Article XIII. The
notice shall include the matter to be arbitrated.
12.2 Attorneys' fees. In the event suit is brought to enforce or interpret any
part of this agreement, the prevailing party shall be entitled to recover, as an
element of its costs of suit (including payments owed to arbitrators incurred in
the action or proceeding) and not as damages, a reasonable attorneys' fee to be
determined by arbitrators or other judicial body. The "prevailing party" shall
be the party who is entitled to recover its cost of suit, whether or not the
suit proceeds to final judgement. A party not entitled to recover its costs
shall not recover attorneys' fees. No sum for attorneys' fees shall be counted
in calculating the amount of a judgement for purposes of determining whether a
party is entitled to recover its costs or attorneys' fees.
ARTICLE XIII - NOTICES
13.1 All notices required to be given hereunder shall be in writing, and all
such notices and documents to be delivered hereunder shall be either delivered
in person to any signatory hereof or mailed by certified mail, return receipt
requested. Notice shall be effective upon receipt. Until notice of a change of
address is given, all such notices and documents shall be given or addressed:
Page 9
<PAGE>
A. To SDS, addressed as follows:
David W. Mulligan
President
First Commonwealth, Inc.
444 North Wells Street - Suite 600
Chicago, IL 60610
B. To SDC, addressed as follows:
Don A. Dieke
President
Smileage Dental Care, Inc.
9052 North Deerbrook Trail
Milwaukee, WI 53223
This Agreement is executed in sereral counterparts. Each is hereby declared
to be an original; however, all shall constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first written above.
Smileage Dental Services, Inc.
By: /s/ David W. Mulligan
---------------------------------------
Its: President
----------------------------------
Smileage Dental Care, Inc.
By: /s/ Don A. Dieke
---------------------------------------
Its: President
----------------------------------
Page 10
<PAGE>
EXHIBIT 99.3
PRESS RELEASE
FOR FURTHER INFORMATION:
AT THE COMPANY:
David W. Mulligan
President and Chief Operating Officer
(312) 644-1800
FOR IMMEDIATE RELEASE
FIRST COMMONWEALTH ACQUIRES WISCONSIN DENTAL ADMINISTRATOR
Chicago, July 19, 1996 - First Commonwealth, Inc. (Nasdaq Stock Market: FCWI), a
leading managed dental benefits company, announced today it has acquired
privately held Smileage Dental Services (SDS), a Wisconsin-based dental HMO
administrator, which currently services approximately 50,000 enrollees. The
transaction was completed through a tax-free exchange of 231,399 shares of First
Commonwealth common stock and common stock equivalents and was completed and
became effective yesterday.
"The acquisition of SDS establishes First Commonwealth as the second
largest provider of managed dental care services in the State of Wisconsin, a
state where managed dental care enrollment is below the national average," said
Christopher C. Multhauf, First Commonwealth Chairman and Chief Executive
Officer. "This transaction is in keeping with our well-defined strategy of
expanding our presence into contiguous markets in the upper Midwest. We plan to
quickly expand our Wisconsin provider network and aggressively market our
products to employers in Wisconsin through the insurance agent community there,"
Multhauf added.
"We are particularly excited about the potential business synergies with
the Smileage organization. They have been quite innovative in delivering managed
dental care benefit plans, primarily through a staff model delivery system.
Their expertise, we believe, will help us grow our presence in all our markets.
We will maintain a local service and marketing office in Wisconsin to build upon
existing local relationships," Multhauf concluded.
SDS, based in the Milwaukee metropolitan area, provides managed dental HMO
services to many of Wisconsin's largest governmental and private sector
employees. SDS former owners include participating dentists at Smileage Dental
Care, a staff model dental provider that renders care to most of the 50,000
dental HMO enrollees. Smileage Dental Care has entered into a long-term contract
with First Commonwealth to continue to provide services to its members, making
the transition nearly invisible to enrollees.
"We are delighted to enter into this partnership with First Commonwealth to
provide services to existing members and the new members we expect to service
through First Commonwealth's marketing expertise," stated Dr. David Erickson,
Chief Professional Officer of Smileage Dental Care. By placing administration of
the dental HMO plan in the capable hands of First Commonwealth, we as dental
care providers can focus our energies on doing what we do best, which is deliver
quality dental care to members and patients. We are pleased that we will be
associated with First Commonwealth in the future, both as dental care
professionals and, in many cases, as shareholders."
First Commonwealth, Inc. is a regionally focused managed dental benefits
company with operations in Illinois, Indiana and, with this acquisition,
Wisconsin. The company markets a broad range of innovative dental benefit
products designed to meet the needs of a wide range of employers. First
Commonwealth, Inc. shares trade on the Nasdaq National Market under the symbol
FCWI.
